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✓ International trade is a citation of the exchange or trading of goods and services between several countries.
✓ It is the way companies purchase and sell goods and services worldwide.
✓ The main objective of international trade is to increase the global economy.
✓ All goods and services, raw materials, foods, machinery, etc., can be sold or purchased in the international trade marketplace.
✓ According to D.C. Luckett, “The purchase of goods and services by the citizens of one country from the citizens of another country is called international trade.”
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Benefits of International Trade
1. Employment Opportunity: It expands and increases the ultimate expert-oriented industries and companies for large-scale production around the world, which helps to increase employment opportunities.
2. Market Expansion: It helps to increase productivity and expand the market of even small countries worldwide. The produced goods can be sold internationally, which ultimately boosts the global market.
3. Technological Progress: A country with primitive technology or a technologically backward country can get modern technology, technical knowledge, and technical skill.
4. Agricultural Development: To modernize primitive agricultural patter, international trade supplies modern tools, equipment, fertilizer, pesticides, etc., which is incredibly beneficial for every nation and especially for those countries that are dependent upon agriculture.
5. Increase in competitive capacity: Every country wants to survive in the international market. Since it promotes quality goods and develops feelings of competition worldwide between various countries.
6. Qualitative and cheapest goods: Due to the intense competition in international trade, the costs of goods may go down or be affordable and also regulates the quality of the product.
Balance of Trade
✓ The difference between the value of exports and imports of goods and services of any country is called the balance of trade.
i.e. Balance of trade = Export – Import
✓ According to R. R. Paul, “Balance of trade is the difference between the values of visible exports and imports.”
Types of Balance of Trade
✓ Trade surplus
✓ Trade Deficit
✓ Balanced Trade balance
Balance of Payment
✓ The record and data of every economic transaction between a country and even the rest of the world are called the balance of payments (BoP).
✓ In the words of R. G. Lipsey and K. A. Chrystal, “Balance of payment is a summary of a country’s transactions involving payments and receipts of foreign exchange.”
Types of Balance of Payments:
1. Favorable Balance of Payment:
✓ If a country has more export than the import rate, it is called a favorable balance of payment.
✓ This condition is considered as the surplus of the balance of payment.
Here, Favorable Balance of Payment = Total Receipts > Total Payments
2. Unfavorable Balance of Payment:
✓ If a country has more Import than export rate, it is called a favorable balance of payment.
✓ This condition is considered as the deficit of the balance of payment.
Here, Unfavorable Balance of Payment = Total Receipts < Total Payments
✓ The rate at which one country can exchange its currency with another country is known as Exchange Rate.
✓ For example, when the exchange rate of the US dollar and Nepalese Rupees is $1 = Rs. 131.255, we give up 131.255 Nepalese Rupees for each US dollar.
✓ According to Crowther, “The rate of exchange measures the number of units of one currency which will change in the foreign exchange market for another.”
Free Trade and Protectionism
✓ Free trade is the absence of every single restriction and barrier on trade, whereas Protectionism is the restrictions and bans on free trade.
✓ The exciting thing is that economists strongly support unrestricted free trade.
✓ But Protectionism ultimately harms economic heightening and people’s prosperity.
How to Reduce the trade deficit of any country?
✓ Increase Export
✓ Decrease Import
✓ Foreign exchange bank
✓ Reduce manufacturing costs
✓ Enhance domestic demands
✓ Invest properly in Research and Development
✓ Utilize modern technique
✓ Apply a growth-friendly policy
✓ Industrial sector development
✓ Increase competition with foreign goods
✓ Publicity and advertising