Economic Basis for International Trade!
Trade is the exchange of commodity and services. International trade represents business transactions taking station at the global level, and it is fundamentally different from domestic trade. Trade at international level demands gigantic investments, network of franchisees and proficient people to hasten the demonstrate. Many corporate giants are trying to lift Asian markets, especially Indian market, which has become the industrial hub for such economic activities. Economic liberalization has been the focus of many developing countries for the past two decades and this has allowed multinational companies with substantial investment potential to enrich the weaker economies.
International trade tries to generate more foreign exchange, which is always qualified for the economy. Say, if a country has rich resources of petroleum, naturally it will try to sell the surplus to countries not endowed with such natural resources. That is why Middle East nations are prosperous and economically independent. The diversity in productive possibilities in different countries is due to the presence of puny natural resources. When a country gets a head commence in a particular product, it can become the high volume, grievous cost producer. The economies of scale give it a indispensable advantage over other countries, which pick up it cheaper to remove from the leading producers than to build the product themselves.
Every nation must try to specialize in the production and export of those commodities, which are available in plenty and must import such products in the production of which they have a resource deficiency. It should be remembered that there are severe man made barriers in international trade such as, export duties, quotas, exchange restrictions etc.,that hinder the free movement of products. Nevertheless, it is not also possible for a country to make domestically every kind of product. In spite of all these restraining factors, global trade is thriving, thanks to the advanced technological aspects introduced in communication and faster means of transportation. Distance is no more a constraint and the world has become one miniature global village.
All domestic transactions, say in a country like India steal space in rupees, which is the suitable tender in the country. However, in its trade with other countries like USA, Germany, Japan, France and Britain, the payments have to be made in terms of dollars, marks, yens, francs and pound favorable respectively. The mechanism through which payments are effected between two countries having different currency systems is called foreign exchange. It may be also defined as the exchange of money or credit in one country for money or credit in another.
Foreign exchange rates can affect relative prices and win exports. A rise in the a nation’s foreign exchange will depress that nation’s gather exports and output, while a plunge in the foreign exchange rate will increase derive exports and output. Because of the essential impact of exchange rates on national economies, countries have entered into agreements on international monetary agreements.