International Trade





International Trade

What is International Trade?

International trade is the act of exchanging capital and services as well as goods across national borders. In most instances, it is the export and import of merchandise and natural resources that are abundant from one host country to another. Therefore, it has social, political, and economic importance. Furthermore, it is characterized by outsourcing, advanced technology, and industrialization for the transfer of commodities from one destination to the next (World Trade Organization 1). While its business environment is more diverse, it deals with fewer factors of production such as labor thereby influencing the growth of a nation’s GDP.

How International Trade is Financed?

Forfeiting is applied in international trade in which the exporter provides a guaranteed debt to a financial entity and the latter advances a cash payment thereby absolving the seller of any liability incase of default. Moreover, bill avalisation involves the assurance of the buyer’s bank of payment incase of his/her lack of remittance. Similarly, credit options are also available whereby working capital or term loans are provided. Likewise, counter trade arrangements are used in which barter trade is applied (McDonald 1). The buyer and the seller reach an agreement about the fixed value devoid of cash transactions. Refinancing schemes are employed as well using credit insurance agencies that create a link between the various parties. In some instances, specialized financial agencies are used too. Such facilities liaise with local subsidiaries to execute cash transactions closer to the interested party

What are the Documents of International Trade?

The purchase order lists the cargo, its quality, and the respective prices for the buyer to scrutinize. A commercial invoice is then produced stipulating the above features as well as other delivery and tax costs. Similarly, the packaging list provides weight and shipping mark details too. However, it lacks the pricing. The irrevocable letter of credit is another document that gives sellers the assurances of payment as long as proof of shipment of goods is established. Likewise, a CMR transport document illustration of the nature of the consignments is present and is used by operators to gain access to international borders (Poon 1). A bill of lading is also vital in asserting contractual receipt of goods and their onward transportation by a shipper. An Air Waybill helps in cargo transportation between airports while a multimodal bill of lading covers diverse transport methods such as air and sea. The certificate of origin is also vital in verifying the origin of merchandise whereas the inspection certificate certifies that goods have undergone certain checks before their shipment.

What is its Risk?

Exchange rates fluctuation is a common risk that would result in losses for the seller. In addition, protracted default may occur whereby the buyer may be unable to make payments even after the elapsing of six months beyond the due date. Import bans may also be imposed after goods have been delivered while political instability may trigger wars hence making it difficult to operate in such an environment (EconomyWatch 1). Similarly, non-acceptance of cargo is a probability thus incurring shipment costs. In addition, changes in government policy could be a factor as well as cultural differences and language barrier. Natural disasters could also affect the nature of trade.

What is the Role of Government in International Trade?

The government fixes tariffs on imported goods in order to cushion domestic investments from foreign competition. It is also involved in making regulations to control the flow of goods and services. Moreover, it facilitates the continuity of business through provision of security and other amenities that ease the trade burdens (Graham 1). By so doing, international trade is simplified.











Works Cited

Risks in International Trade” EconomyWatch. 29 June 2010. Web. 26 February 2015.

“Who We Are”. World Trade Organization. n.d. web. 26 February 2015.

Graham Robert. Managerial Economics: Basic’s of the Government’s Role in International Trade. For Dummies. n.d. web. 26 February 2015.

McDonald, Brad. International trade: Commerce among Nations. International Monetary Fund, 28 March 2012. web. 26 February 2015.

Poon, Daniel. Common Import/Export Documents. HKTCC Research, 17 September 2007. web. 26 February 2015.





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