International Trade

International trade is a branch of economics which comes under international finance. International trade has a pervasive importance of standard of living and daily lives. International trade refers to exchange of any goods or services and capital across territories. International trade differs from domestic trade with respect to methods and documents used.  In a domestic transaction the buyer and the seller are closer to each other, than in case of foreign trade.  In International trade it is usually difficult for the seller to obtain correct information about the credit worthiness of the buyers abroad.  There are also the problems of communication.  Moreover the means of transportation are less certain.  This increases the problem of collection, since any legal recovery process will be costly and time consuming.  All these factors make the process of settling the accounts more complicated.  Generally a seller or exporter would prefer to receive cash in advance or on delivery.  But cash payments in the International trade have become rare, except in some exceptional cases, where the product commands a unique position in the international market.  The present is the ‘credit era’.  Most of the transactions are performed on credit basis on account of the following reasons:

• Intensive competition and increase in number of sellers have given buyer the option to purchase goods from seller who can offer the most for their money.
• Credit-terms have become one of the most important factors in negotiating a sale.
• Credit insurance has reduced the risk of credit extension.

International trade is also a risky one where the companies doing business across territories face many risks like purchaser cannot pay; buyer rejects goods as different from the agreed upon specifications; allowing the buyer to take possession of goods prior to payment; change in rules that prevents the transaction; governmental action to prevent a transaction being completed; change in leadership interfering with transactions or prices; War and other uncontrollable events.  But the fact is, if there is no international trade, nations would be limited to the goods and services produced within their own borders.