ICom Notes Class 12 Banking International Trade

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INTERNATIONAL TRADE

International trade refers to that trade that take place between a country and a number of countries of the world. In other words we can say that all the trading activities that take place across the national boundaries is called International or Foreign trade. It is effect is called balance of payments.

INTERNAL TRADE

Internal or Domestic or inter-regional trade is the trade between different regions in the same country. We can also say that all the trading activities that take place within a country is called Internal trade.

ABSOLUTE ADVANTAGE

A country due to its most favourable geographical conditions may have an advantage in the production of a particular commodity over other countries. This advantage is known as absolute advantage for that country over rest of the world. The absolute advantage results in a regular inflow and outflow of goods which gives rise to International Trade.

COMPARATIVE ADVANTAGE

When a country has an advantage of production and move than one commodity it prefers to produce only one commodity that is more advantageous for other. This advantage is calculated by comparing the different commodities that how much they paying commodity is selected and the country goes for specializing. This is known as comparative advantage.

Bases for international trade

Some of the reasons that why do trade between different countries occur are discussed under the following heads.

NATURAL ENDOWMENTS

Differences in advantages of trade to different countries may arise because of natural reasons like geographical and climatic conditions. This lead to territorial division of labour and localization of industry. This different countries specialize in the production of different things.

HUMAN CAPABILITIES

People in some countries are physically more sturdy where as in others they are intellectually superior. Some have greater skill and dexterity thus the countries. Which do not possess these qualities try to share with them.

STOCK OF CAPITAL

Some countries have large stock of capital goods like U.K, U.S.A, etc. These gives an opportunity to the underdeveloped countries or those which lack these capital goods to exchange or trade them through the channel of distribution internationally.

SPECIALIZATION IN PRODUCTION

A country may have a comparative cost advantage in production in more than one commodity over other countries but produces only one commodity for the sake of specialization. It helps in improving the quality of production to a great extent.