What is Foreign Trade? Types of Foreign Trade

len Alfred Ajibola - Wed, 04th December, 2019 @ 11:23: AM

Topics in Commerce

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Academic Questions in Commerce

Please check out our Test Your Knowledge page to see all Questions and Answers

The followings are principles of marketing mix except _____.

  • A. People

  • B. Positioning

  • C. Pressure group

  • D. Packaging

  • E. Promotion

  • F. Product

The followings are advantages of division of labour EXCEPT _____.

  • A. It promotes the use of machines in production industries
  • B. There is an increase in profit
  • C. It saves time and expenses of training
  • D. It fosters the spirit of division
  • E. It increases the production of quality goods and services in the market
  • F. It increases a country's economic growth

Which of the following statement is incorrect concerning division of labour?

  • A. It is the specialization of works
  • B. It can become monotonous
  • C. It is the specialization of processes
  • D. The nature of a job is not a condition for division of labour
  • E. A person performs only a part of the job
  • F. Division of labour has some of its drawbacks

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What is Foreign Trade?

Let me begin by asking you a question.

  • Have you purchased a product right within your country, only to observe in its label that such product isn't manufactured in your country?

If your answer to the above question is a "yes", then you're already experiencing the effects of foreign trade.

Foreign Trade is defined as the exchange of goods, services and capital between two or more countries.

It is also referred to as an International Trade.

Please read on the Advantages of Foreign Trade here.

No single country manufactures all the goods and services in our world. This implies that every country of the world relies on certain goods and services imported (or brought in) from other countries.

Please read more on Production here.

Consider the instance below.

Nigeria as a nation is a major producer and exporter of crude oil (petroleum). Interestingly, Nigeria imports the products of petroleum like petrol, kerosene, diesel and others.

Please read on the Disdvantages of Foreign Trade here.

Note: From the above instance, we can see that importation and exportation are a function of foreign or International trade.

  • When a product is sold to other countries in the global market, it's termed export or exportation.
  • Conversely, when products are brought into a country from the global market, it's termed import or importation.

Imports and Exports are recorded in a country's current account in the balance of payments.

Please read more on Balance of Trade and Balance of Payments here.

The theory of international trade is guided by the principle of comparative cost. This principle was propounded by David Richards.

The principle of comparative cost states that a country should specialize in the production of goods and services in which they have a greater comparative advantage or the least comparative disadvantage.

David Richards

Please read on the Concept and Types of Cost here.

Below is an instance of the principle of comparative cost.

Assuming we have two countries producing and exporting rice and beans.

If country A produces 100 grams of rice and 300 grams of beans daily and country B produces 50 grams of rice and 150 grams of beans respectively on a daily basis, then according to this principle, country A has an advantage over country B with regards rice and beans production; but better still, country A has a greater comparative advantage in the production of Beans.

Similarly, country B is at a disadvantage with regards to the production of rice and beans. Infact, it's even in a bigger comparative disadvantage regarding beans production.

Note: The point is: A country utilizing the principle of comparative cost will therefore produce quality goods and services at a cheaper cost. 

Please read on Supply, Supply Curve and Elasticity of Supply here.


Types of Foreign | International Trade

Foreign or International trade are classified into 2 types. These are:

1. Bilateral Trade

The term "bi" means 2. In a bilateral trade, two countries are involved.

Bilateral trade is defined as a trade agreement in which two countries exchange goods and services.

The trade between Nigeria and India is an example of a bilateral trade.

In a bilateral trade, the country involved balances its payments and receipts separately for each country it trades with.

Please read on the Meaning, Scope, Functions and Characteristics of Commerce here.


2. Multilateral Trade

In a multilareral trade, a country does business with more than two countries.

A multilateral trade is defined as one in which a country trades with two or more countries.

As an instance, Nigeria trades with India, China and South Africa simultaneously.

Please read on the Divisions of Foreign Trade here.

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Alfred Ajibola is a Medical Biochemist, a passionate Academician with over 7 years of experience, a Versatile Writer, a Web Developer, a Cisco Certified Network Associate and a Cisco CyberOps Associate.

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Amazing facts in Commerce

Amazon is an e-commerce website launched in 1995. It did not make any profit for its first seven years.

Amazon's first profit was in 2003. Its founder 'Jeff Bezos' is the richest man in the world as at 2018/2019


Commerce can be defined as the exchange of goods and services, usually for money and on a large scale that will require the transportation of such goods and services.

Commerce is crucial (important) to the life of any Nation for the following reasons:

  1. Commerce facilitates the exchange of goods and services which everyone can enjoy, regardless their location or whether the goods is produced within or outside their country.
  2. Commerce creates an awareness of the existence of goods and services through advertising.
  3. Commerce offers employment to a very large number of people in a Nation.
  4. Commerce promotes rapid transfer of both oral and written messages through communication.
  5. Commerce determines the standard of living in a Nation. This is because the extent of commercial activities is crucial to wealth of  a nation.
  6. Commerce makes for the protection against risk in day to day business operations.
  7. Through commerce, there is a steady supply of goods in a Nation. This is because commerce ensures that goods produced are stored until needed.

Please read on the functions and characteristics of commerce here

A public company is not owned by an individual; rather it's usually owned by groups or a large number of people.

The shares of a public company are traded freely on the stock exchange.

Below are some features of a public company:

  1. A public company must receive it’s training certificate to commence business.
  2. The minimum membership is two while the maximum membership is limitless.
  3. A public company has a legal status. It can sue and be sued.
  4. A public company files and publishes its annual reports, including its accounts.
  5. The liability of its members is limited.
  6. The shares are easily transferrable through the stock market.
  7. A public company can issue debentures to be secured as its assets.

Please read on Limited Liability Company, Its Advantages and Disadvantages here

There are seven elements of the marketing mix. These are:

  1. Product: Anything thing that satisfies a consumer’s need is referred to as a product. Product may come in the form of manufactured goods, raw materials or services.
  2. Price: Price is defined as the exchange value of goods and services supplied. In simple terms, it serves as a mechanism of exchange.
  3. Promotion: It involves all the processes that concerns with how business organizations should inform their customers about its product. If done properly, the demand of product will be increased. Promotions can take the form of advertising, search engine optimization, social media marketing, trade fairs exhibition and so on.
  4. Place: The place as a marketing mix concerns variables such as location and transport facility where the distribution of goods and services take place.
  5. Packaging
  6. Positioning
  7. People

Think of marketing mix as the set of marketing tools that an industry or company uses to drive or accomplish its marketing objectives in the target market

Please read on the Principles of Marketing Mix here