What is International trade?

In its simplest form, international trade is the exchange of goods or services across the national border for consideration. However, due to liberalization, privatization and globalization process and integration with global capital markets cross border capital flow has become the integral part of international trade. Every commercial trade transaction has two sides. From one side we observe movement of goods and services which must be followed by payment and settlement. How international trade differs from domestic trade? The buyers and sellers are from different countries and everything differs in the buyers country and sellers country. International trade is subject to different types of risk like currency risk, country risk, Credit risk, Market risk, interest rate risk & Operational risk. Export import firm must have proper risk management strategy in place before taking exposure in international trade. International trade is subject to different types of environments like political, economical, social, technological and regulatory environment. As such it becomes necessary for export import firms to do SWOT and PEST analysis before taking exposure. International trade is subject to different types of trade barriers like tariff barriers and non-tariff barriers. WTO plays an important role in international trade. WTO has been trying to remove barriers for international trade and to create free trade environment for international trade. In international trade goods travel over a long distance and are subject to perils of sea. The environment of international trade is dominated by MNCs and TNCs. Different types of parties and regulators are involved in international trade. For e.g. Buyer, Seller, shipping companies and transport operators, Freight forwarders, , Clearing House Agents, Insurance companies, Inspection agencies, Local Chamber of commerce and International Chamber of Commerce, WTO, DGFT, RBI, Customs etc.

Key issues in International Trade

The higher risks involved in international trade require that several broad issues be resolved before entering into a trade transaction. The answers to these questions decide the ultimate shape of an international trade contract. The key concerns that need to be addressed are: Who bears the Credit Risk? Who finances the transaction? In what currency payment will be made? Who will bear the transportation costs and risks? Who bears the Credit Risk?

In any transaction, the buyer would wish to make payment as late as possible, while the seller requires payment as early as possible.