FOREIGN TRADE —MEANING, TYPES AND FEATURES

Foreign trade is defined as the buying and selling of goods and services outside the geographical boundaries of a country.

It can also refer to the transaction between two countries in which capital, goods, and services are bought, sold, or exchanged, whether through import, export, or an entrepot.

Foreign trade occurs when goods and services are sold outside the geographical areas of different countries.

Foreign trade is essential and common to all countries because no country is self-sufficient to produce all the things it consumes.

Foreign trade can be done by individuals, by group of people, by institutions and by the government.

Foreign trade is also known as international trade, external trade or inter-regional trade

Types of Foreign trade

1. Import trade: This occurs when a country buys goods from another country.

In import trade, a trader or firm located in one country, say Nigeria, may buy goods from another trader or firm located in another country, say Japan.

Import trade involves bringing goods from other countries into our country. It means receiving goods and services exported from another country.

Import trade is a result of citizens' demand for goods and services produced in other countries.

2. Export trade: This occurs when a country sells goods to another country.

Export means shipping goods out of the port of a country.

It means selling capital, goods and services from the home country to the foreign market.

Foreign demand for goods and services produced in a home country leads to export trade.

3. Entrepot trade: This is the importation of goods and services from one country to export them to another country.

Entrepot trade means buying goods and services from one country and then selling the same goods and services to another country.

Entrepot trade is sometimes called re-export trade because it involves buying goods and services from one country and then reselling them to another country.

Features of Foreign trade

1. It involves at least two countries: Foreign trade takes place between two or more countries as opposed to domestic trade, which occurs within a single nation.

2. Use of different currencies: As it involves multiple countries, the use of different currencies is a common feature of foreign trade.

The amount of international trade between the two nations has a significant impact on the exchange rate, which is the rate at which one currency can be converted into another

 3. Regulated by international laws: Foreign trade is governed by international law, as opposed to domestic trade, which is subject to domestic law.

Typically, nations that engage in international trade abide by laws created by organizations like the World Trade Organization.

Additionally, businesses engaging in international trade will have to deal with the differences in rules and regulations posed by different countries.

4. Mode of transportation: In international trade, the buyer and seller are located in nations that are thousands of miles apart.

Due to this, air and maritime transportation are the most popular means of moving goods internationally.

Because some nations are separated by oceans, road transportation is not regarded as a good means of transportation for international trade.

5. Much formalities: Without legal formalities and documentation, there can be no international trade.

The government normally requires all business people and traders to submit the proper paperwork and documentation to regulatory bodies and authorities.

This is to ensure that all trade is adequately recorded for national income accounting purposes and also for the protection of national interest

6. Subject to customs duties: Customs duties are taxes imposed on the flow of goods in and out of a country.

Generally speaking, imports and exports of products are subject to customs duty.

7. Increased cost: The cost of carrying out foreign trade is generally higher than that of domestic trade because custom duties and other expenses are incurred in foreign trade.

Conclusion

To summarize, foreign trade is the exchange of goods and services between two or more countries.

Foreign trade is also known as international trade or external trade.

Foreign trade consists of export, import and entrepot trade.

Export is the outflow of goods and services from one country to another.

Import, on the other hand, is the inflow of goods and services from other countries.

Entrepot (or re-export trade) is defined as buying goods from other countries, not for consumption but to re-sale them to another country.

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