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

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In commerce, which of the following is false with regards to a commodity?

  • A. A commodity must always have a market value

  • B. Rendered services are also instances of commodities

  • C. Products applicable to commodities can be bought or sold with money

  • D. A commodity must be standardized

  • E. A commodity must be usable upon delivery

  • F. Commodities can be traded in the futures market

Whatever is being marketed must always provide value to its potential consumers.

  • A. True

  • B. False

Which of the following is not a branch of marketing?

  • A. Merchandising

  • B. Promotions

  • C. Forex

  • D. Search Media Optimization

  • E. Social Media Optimization

  • F. Copywriting

Which of the following is not a characteristics of commerce?

  • A. The only aim of commerce is to make profit

  • B. It is a discontinuous process after profit had been made

  • C. It is accompanied with challenges and uncertainties

  • D. It is 100% business and economic activity

  • E. Transaction processes are always involved in commerce

  • F. It connects the process of production and marketing

Which of the following is not a function of commerce?

  • A. Unnecessary in times of emergencies like earthquakes and wars

  • B. Facilitates mass production of goods

  • C. Influences transportation network within and outside a state

  • D. Attempts to satisfy human needs and wants

  • E. Improves the standard of living

  • F. Acts as an online business link between buyers and sellers

One of the following is a form of division of labour.

  • A. Agonistic division of labour
  • B. Antagonistic division of labour
  • C. Mutualistic division of Labour
  • D. Advanced division of labour
  • E. Solitary division of labour
  • F. Occupational division of labour

A place where people buy homogenous goods in large quantities is called _____.

  • A. Wholesaler's Market

  • B. Goods Market

  • C. Products Market

  • D. General Market

  • E. Commodity Market

  • F. Forex Market

Any activity aimed at getting people interested in a company's product or service is termed _____.

  • A. Commerce

  • B. Economics

  • C. Financial Accounting

  • D. Marketing

  • E. Production

  • F. Distribution

What is foreign trade?

Let me begin this article by asking you a question:

  • Have you purchased a product right within your country, only to observe in its label that such product wasn'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.

Foreign trade is also termed as '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 (as at the time of writing this article in 2019). Meanwhile, understand that a Nigerian named Aliko Dangote had laid the foundation towards building a refinery in Lagos, Nigeria. This refinery is speculated to become the largest refinery in Africa and perhaps, the world at large.

    Please read on the disdvantages of foreign trade here.

From the above instance, we can see that importation and exportation activities are a function of foreign or International trade. Below are some brief explanations on importation and exportation activities.

  • When a product is sold to other countries in the global market, it's termed export or exportation.
  • 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 generally associated with its '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 on the principle of comparative cost.

Now, let us assume we have two countries producing and exporting rice and beans respectively.

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 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.

From the above instance, it can also be said that country B is at a disadvantage with regards to the production of rice and beans. Infact, it has a bigger comparative disadvantage with regards to beans production.

The point to note here is this: A country utilizing the principle of comparative cost will always produce quality goods and services at a cheaper cost.

Please read on supply here.


Types of foreign trade

Foreign or international trade are classified into two types. These are:

1. Bilateral Trade

The word '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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Amazing facts in Commerce

With Amazon Smile, you can donate 0.5 percent of your purchases to a charity of your choosing

Check it out here

The brewery, Sankt Gallen in Japan, produces a beer called Un Kono Kuro from elephant's dung

North Korea and Cuba are the only countries in the world where you can't buy Coca-Cola

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


Balance of Trade can be defined as the total value of goods imported and exported by a country during a specific period; usually yearly or annually.

Balance of trade can be either positive, negative or zero

  • A positive balance of trade implies that a country exports more goods than its imports. China as a country is likely to have a positive balance of trade since it exports a variety of goods to other countries.

  • A negative balance of trade is often considered as an unfavorable balance of trade since the country's importation exceeds its exportation. Nigeria (as at 2018) is likely to have a negative balance of trade.

  • A zero balance of trade is reached when imports equal exports.

Please read on balance of trade and balance of payments here.

Balance of Payments is defined as a record showing the relationship between a country’s total payment made to other countries and the total money received from other countries within a time period.

The balance of payments is a guide that tells a country whether it has enough savings to pay for all its imports. It will also show the economic output of a country.

  • Needs are things considered necessary for an individual or a group of persons. Personally, they may be referred to your required goods and services. Your needs are necessary and you consider them very important for your well-being. Examples are food, clothes and shelter.

  • Wants are always desired. They are not necessarily required and you can absolutely do without them. Examples of wants are expensive cars and watches.

According to Parkinson and Bates, Production is defined as an organized activity of transforming resources into finished products in the form of goods and services.

From the above definition, the objective of production is therefore to satisfy the demand for goods and services.

It is worthy of note to state that whenever services are rendered, such rendered services are also considered as production. This is true because the rendered services satisfy the needs or wants of the recipient or consumer.

Therefore, people who provide services like hairdressers, security men and public bus drivers are considered productive; and whatever service had been rendered can appropriately be referred to as production.

Please read more on production here.

prepayment is somewhat an opposition to deferred payment. This is true because the concept of prepayment oversees that the buyer makes payment beforehand and must wait to enjoy whatever had been paid for after some significant time had elapse.

In short, you can think of a prepayment as 'paying in advance'. An example is when a tenant pays in advance to a landlord for an apartment yet to be used. Another example is an online payment for items yet to be received.