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QUESTION No.25. What do you mean by Foreign Trade? Discuss the problems a trader has to face in foreign trade? ANSWER: FOREIGN TRADE: INTRODUCTION: Trade is one of the important part of commerce .It implies to exchange of goods & receives money for other goods. The trade which is being conducted now a day is totally changes from the trade few decades ago. The goods are produced & sold in the local market without any problem. But now a day competition has increases & firms are exposing new market in order to resist or to expand their trade activities. The act on behalf of firm to explore new market outside boundaries of the country is known as foreign trade/external trade. DEFINITIONS: FOREIGN TRADE implies the buying & selling of goods & services b/w the nations of different countries. It consist of expand of goods and impact of goods from abroad. OR Foreign trade refers to exchange of goods & services b/w the citizen of two or more countries it is foreign trade. OR

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When there is any dealing in good & services b/w two or more countries it is foreign trade. CAUSES OF FORIEGN TRADE: The main causes due to which countries indulge is foreign trade are: Every country is not self sufficient it lacks in certain things due to which it has to make impacts. It creates better relationship among the different countries. With the help of international trade, a country can have advantage in the production of some goods over other goods, which can be exported to other countries to earn high profits. It helps in getting the advantage of decision of labor. It broader the market for producer cultivates of other countries can be acquainted. DIFFICULITIES/PROBLEMS Faced in FOREIGN TRADE: NO doubt foreign trade increases the pace of economic development of a country. It helps a country achieving different goods including market expansion accumulation of foreign exchange employment, increase in living standard & many other means of objective, but on the other hand there are problems which are faced in foreign trade. The main difficulties which are faced by the parties involved in foreign trade are as under: 1. DISTANCE:

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Distance is the foreign trade varies from country to country. Usually, it carries long distance. Even with the development of fast means of communication & transport. It is normally difficult to establish close relationship b/w importer & exporter. 2. PAYMENT: All payments in foreign trade are made in the currency of exporter country. Attainment of exchange rate may create problem for fluctuating and calculation of prices. Existence of the efficient banking system is essential to avoid these kinds of problems. PREPARATION OF DOCUMENTS: In foreign trade the importer as well as the exporter has to prepare large number of documents which are not required in home trade. For example letter of credit, bill of exchange, importer exporter license etc.

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CREDIT RISK: The exporters often sell their products on credit. They have to incur credit risk arising from importers default i.e. bankrupt. GOVT POLICY: Sometimes government of any country implies certain restrictions on the import and export of goods and services. Moreover Govt license and permission is necessary for foreign trade.

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STUDY OF FOREIGN TRADE: In foreign trade both buyer and seller of goods have to secure full information about the customer traditions, marketing methods etc of the other market of each other. If the trader is not well aware of foreign market then he is beard to face difficulties & suffer loss. DIVERSITY OF LANGUAGE: Different languages are spoken & written in different countries. The trader wishing to establish trade relations with foreigners must have to adequate skill of foreign language is order to conduct trade. PRICE DESCRIMINATION: Some countries are indulged in price discrimination & dumping of goods. This creates tension b/w the nations which is harmful for the smooth functioning of international trade. POLITICAL CONDITION: The government of the countries may restrict traders or business man to conduct foreign trade due to their embittered reduction.

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10. DEALING THROUGH AGENTS: In foreign trade most of the functions are performed through agents for e.g. import & export agent, formatting agent, clearing agent etc. Although they facilitate the trader but dealing with agent s is a difficult task. Sometimes agent may cause delayed transactions.

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11. LONG PERIOD INVESTMENT: Foreign trade requires investments of funds for longer period of time. The dispatch of goods through shipment and their receipts by buyer take time so the capital of exporter may blocked for considerable period of time. 12. AVAILABILITY OF FUNDS: In foreign trade it is difficult to obtain information among barrier standings, financial position & credit worthiness of trader due to this banker may feel hesitation to grant loans which may act as hurdle to trader indulged in foreign trade.

14. CUSTOM DUTIES: Now days every country lies custom duties on importer and exporter in order to protect home. Industry or for public revenue. High traffic restricts the entry & exit of goods. 15. RISK OF FREQUENT PRICE: Foreign trade is subject to frequent price changes either due to international competition or due to fluctuation in exchange rate. The par paints in foreign trade have to bear losses due to exchange price. CONCLUSION:

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13. RISK IN TRANSIT: In foreign trade goods are usually shipped which may sink, spoiled or stolen during voyage. Through insurance we can cover the risk but this cause increase in cost of goods.

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No doubt due to the fast means of communication , transport & widespread education & internet facilitates the problems involved in foreign trade are gradually deuced but still foreign trade is quite complicated as compare to home trade.

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