Countries all over the world engaged in trade.
The endowment of certain natural resources
and technological development capabilities in
some countries and none in others implies that
countries have to depend on one another for
optimum utilization of all resources to
promote a balanced standard of living.
International trade, which is also known as
foreign trade, is different from home trade.
International trade is trade across national
frontiers: home trade, which is also known as
domestic trade, is trade within the same
The need to depend upon one another for
certain natural and technological resources has
led to international trade. All forms of buying
and selling taking place in or within your
country come under home international trade.
They are goods and services coming into one
country from another country.
Eg. kofi buys from china and ship to Ghana.
Imports are the reverse of exports.
Import usually cover goods and services which
can not be produced locally. Imports do not
require much documentation from the
importer .The importer has to establish an
irrevocable letter of credit, thus giving legal
authority for the payment of the item when it
is put on board a vessel or an aircraft bound
for the importing country. This both enables
countries to benefit from goods and services
from other countries and enable citizens all
over the world to enjoy the consumption of a
wide variety of goods and services.
Example : When Nigeria buys car, raw
materials and machinery from japan.
Exports are tangible goods or intangible
services moving from one country to another
country. Tangible goods includes timber, gold,
cocoa and cattle,And intangible goods are the
services of trained personnel such as military,
police, engineers, doctors and artisans.
Since exports are the main sourcea of available
foreign revenue, an effective mechanism to
control and monitor all goods and services that
are exported is necessary.
Exports make available foreign money for
economic development and enable both the
government and individuals to earn foreign
money to buy from other countries items such
as machinery, and raw materials for
BALANCE OF PAYMENTS
Balance of payments refers to the records of
all financial transactions ( total payments and
total receipts) between the residents of on
country and the residents of all other foreign
countries within a given accounting period,
normally one year. It is a summary of imports
and exports and how the difference, if any is
The balance of payments is said to be favorable
if total receipts by a country from its trading
partner are more than total payments. It is
said to be unfavourable if the reverse
Components of Balance of Payments :
2. Capital account
3. Visible trade
4. Invisible trade
BALANCE OF TRADE
Posted on March 7, 2015 by Simon
Balance of trade shows the relationship
between exports and imports of visible goods.
If the total value of exports for a particular
accounting period exceeds the total value of
imports for the same period, the balance of
trade is said to be favorable. If the total value
of visible imports is greater than the total
value of visible exports the balance of trade is
said to be unfavorable.
ADVANTAGES OF INTERNATIONAL TRADE
1. Foreign exchange :
International trade helps countries to earn
foreign currency, which enables a country to
buy its requirements from other countries.
2. Improved standard of living :
Consumption of an increased variety of goods
and services through international trade lead
to a better standard of living.
3. Financial assistance :
Through international trading, countries may
benefits from trading partners through
4. Cultural exchange :
International trade facilitates the exchange of
5. International understanding :
Since international trade brings national of
different countries together, it leads to some
degree of international understanding between
6. Division of labour
DISADVANTAGES OF INTERNATIONAL TRADE
1. Language barrier :
Different countries have different languages,
which can create communication problems for
countries engaged in international trade.
2. Different legal system :
International trade is sometimes impeded by
different legal systems. As these can vary from
one country to another. It sometimes become
very difficult to decide which country’s legal
system should apply when a dispute arises.
3. Overdependence :
International trade makes some countries
dependent on other countries.
4. Agency :
Since it is not always possible for countries
and individuals engaged in international trade
to be in constant touch with one another, it is
sometimes necessary to use agents who will
introduce their principals to third parties.
5. Customs procedures :
International trade is subject to complex
custom procedures at entry points and trade
can subjected to frustrating action by customs
officers which retard international trade.
6. Currency restrictions :
International recognition of some currencies as
convertible creates restrictions in international