International trade is also known as foreign trade involves the exchange of goods and services between two or more countries. Specialization is the underlying principle to the purchase and sale between one country and another. International trade theory, therefore, is based on the principle of comparative costs.
The theory states that a country should specialize in the production of goods and services which have a cost advantage over another country. For example, Nigeria buys goods like automobiles and electronics to overseas countries and sells products like cocoa, groundnut, crude oil, etc. to these countries.
Trade Types
There are two main types, namely:
1. Bilateral trade: Bilateral trade is an international trade agreement in which both countries exchange goods and services. Is that each country tries to balance its payments and receipts separately and individually with others.
2. Multilateral Trade: the international multilateral trade is a kind of international trade in which a country trades with many other countries. This ensures that the international division of labor. It is a kind of trade in many countries to exchange their goods and services. The multilateral trade is necessary for the total volume of world trade is maximized.
Domestic trade
Also known as the domestic trade or house, involves the exchange of goods and services between individuals within a particular country. This is the buying and selling of goods and services within a particular country. The financial management of this trade are the goods and services produced and sold internally or locally. Some highlights are:
1. Both operations involve a degree of expertise to make the exchange.
2. Both ways of involving the activities of intermediaries.
3. Both arise because of the unequal distribution of natural resources and production resources.
4. Foreign trade occurs across national borders, while internal trade is the exchange of goods within the borders of a country.
5.The foreign buyers and sellers doing business in foreign trade with different currencies, while buyers and sellers in the trade use the same base currency.
6. There is no possibility of restricting the fees, import duties, export duties, quotas, however, when goods are exchanged across national boundaries, while this does not occur in internal trade.
7. There are differences in the weighing and measuring systems in a country with one another. A country has only one set of weighing and measuring such. Read the rest of this entry »
