INTERNATIONAL TRADE I

One way by which we live better on earth today is because international trade permits national, regional or territorial division of labour to be practiced.  International trade also known as foreign trade or external trade involves the exchange of goods and services between two or more countries.

TYPES OF INTERNATIONAL TRADE

There are two major types of international trade.  These are:

1. Bilateral International Trade – Bilateral international trade is a trade agreement in which two countries exchange goods and services.
2. Multilateral International Trade – Multilateral international trade is a type of trade in which a country trades with many other countries. E.g. Nigeria trades with the USA, Britain and Japan.

 

REASONS FOR INTERNATIONAL TRADE

1. Uneven distribution of natural resources. While some countries are naturally blessed, others have little or no natural resources.
2. Differences in Climatic Condition – This variation gives rise to growth of different crops, hence the need for exchange.
3. Differences in Technology – Some countries with advanced technology can produce some industrial product at reduced cost and sell to the less developed countries.
4. Expansion of market for product.
5. Desire to improve the standard of living

 

EVALUATION

1. What is Foreign Trade?
2. Give five reasons for international trade.

 

BARRIERS OR PROBLEMS OF INTERNATION TRADE

1. Language problem
2. Problem of distance
3. Numerous documents
4. Differences or fluctuation in currency
5. Tariff – This makes imported goods more expensive.
6. Religion and cultural differences.
7. Artificial barriers e.g. ban, quota, or the use of license
8. Transport and Communication problem.
9. Government policy.

 

DIFFERENCE BETWEEN DOMESTIC AND FOREIGN TRADE

1. Common language is spoken in Domestic trade while in Foreign trade requires knowledge of new language.
2. There are differences in system of weighing and measuring in one country vis-à-vis another. A country has only one system of such weigh and measuring.
3. Differences in transport cost due to distance between buyers and sellers, documentation requirement, need for insurance in respect of foreign trade distinguish foreign trade from home trade.
4. There are also differences in legal systems and culture under international trade but the legal system are the same in domestic trade.
5. In foreign trade, buyers and sellers use different currencies whereas buyers and sellers in home trade use the same type of currency.
6. There is possibility of restriction – tarrifs, import duties, export duties quota embargoes – when goods are exchange across national boundaries while this does not occur in home trade.

 

EVALUATION

1. In what ways is foreign trade different from domestic trade (WASSCE) June 2003.
2. Explain five ways Nigeria will benefit from trading with Britain.

 

GENERAL EVALUATION

1. Describe four problems of barter system.
2. What is perfect competition?
3. Differentiate between creeping inflation and hyperinflation.
4. What is competitive supply?
5. Differentiate between direct tax and indirect tax.

 

WEEKEND ASSIGNMENT

1. International trade and domestic trade are similar in all aspect except that………….
2. Transportation by land, water and air is involved     B.  Goods are exchanged
3. Services are exchanged D. The same currency is used as medium of exchange
4. Specialization and increased consumption is encouraged.
5. International trade is necessary mainly because………………
6. no country can live in economic isolation B. different countries are endowed with the same natural and man-made resources C. some countries have comparative cost advantage in the production of certain commodities D. the world demand for and supply of various categories of commodities is expanding very fast.  E.  Countries want to build up their foreign exchange reserves.
7. International trade takes place because of differences in …… A. production cost           B.  language     C.  currency            D.  government policy  D. international boundary
8. The instrument used in many countries to restrict imports include: A. high tariff
9. price index C. exercise duties D.bank rates E. subsidies
10. The exchange of goods and services across different countries can be described as ………… A. Bi-lateral trade   B.  multilateral trade          C. national trade           D. home trade

 

THEORY

1. State five benefits of international trade.
2. Outline five obstacles to effective trade among countries in the world.

 

See also

REGULATORY AGENCIES OF FINANCIAL INSTITUTION

SERVICE INDUSTRY

MANUFACTURING AND CONSTRUCTION INDUSTRIES

PETROLEUM AND THE NIGERIAN ECONOMY

HUMAN CAPITAL DEVELOPMENT