historic definition...

Foreign trade -- Same as external trade or commerce; the exports and imports of
a country ; that is, its trade (purchases and sales) with another country.

Term foreign trade Definition: Exchange of goods and services between countries. The inclination for
one country to trade with another is based in large part on the idea of comparative advantage--which
says that any country, no matter how technologically disadvantaged it might be, can always find some
sort of good that will let it enter the game of foreign trade. In this sense, foreign trade is just an
extension of the production, exchange, and consumption that's a fundamental part of life. The only
difference with foreign trade is that producers and consumers reside in separate countries.

What Is the Meaning of Foreign Exchange Risk?

Currency risks lead to lost profits.

Foreign exchange is essential to coordinate international business transactions. Foreign exchange

describes the process of trading different currencies to make and receive payments. Additionally,
investors look to foreign exchange markets to trade currencies for a profit. These foreign
exchange transactions do carry distinct risks. In order to minimize risks, you should understand
the factors related to currency fluctuations, before coordinating business strategy.

Identification

1. Foreign exchange rates track the economic and political standing of a particular nation.
Countries with stable political legislation and strong economies support higher currency values.
Conversely, weak exchange rates for a country may signal economic recession and political
 instability. For example, institutions are less likely to do business within countries that are
engaged in regional warfare.

Features

2. Foreign exchange risks relate to currency movements that adversely affect your bottom line. For
example, American businesses holding Japanese yen reserves lose purchasing power when the
yen declines. Alternatively, Japanese exporters suffer when the yen appreciates. At that point,
Japanese exports become more expensive for overseas buyers.

Considerations

3. Foreign exchange markets introduce political risks. In recession, citizens highlight unfavorable
exchange rates as evidence that politicians are mismanaging the economy. Unfavorable
exchange rates generally translate into either foreign trade deficits or inflation for the domestic
economy. High exchange rates slow the export economy, while low exchange rates increase the
costs for imported goods. Politicians may respond to these conditions with reforms, such as
import quotas and duties, which are designed to protect the domestic economy.

Strategy

4. Diversified business portfolios and currency derivatives manage foreign exchange risks.
Diversification allows you to profit amidst numerous economic scenarios. For example, high oil
prices may translate into a strong economy and ruble in resource-rich Russia, while the U.S. falls
into recession and the dollar declines. Larger American companies may set up operations in
Russia to diversify themselves against the American slowdown. Individual investors, however,
may purchase mutual funds that target Russian investments.

Beyond diversification, sophisticated investors use currency derivatives, such as futures, options,
and forwards to minimize foreign exchange risks. Currency derivatives work to lock in
predetermined exchange rates for set periods. Futures and options are currency derivatives that
trade on organized exchanges, such as the Chicago Mercantile Exchange. Options grant you the
choice of accepting a set exchange rate, while futures contracts require settlement at
predetermined currency rates. Alternatively, forwards are customized agreements between two
parties that establish exchange rates to trade currencies between themselves at a later date.

Warning

5. International business associated with foreign exchange markets translates into contagion risks.
Contagion is when economic distress spreads from one country and throughout regions to affect
the global marketplace. For example, Mexican government default on its official debt would
cause the Mexican peso to collapse. At that point, foreign investors doing business in Mexico
would suffer substantial losses. These investors would then sell off their domestic investments
for cash, which would lead to stock market declines in their respective home countries.
 INCOTERMS

Language is one of the most complex and important tools of International Trade. As in any complex and
sophisticated business, small changes in wording can have a major impact on all aspects of a business agreement.

Word definitions often differ from industry to industry. This is especially true of global trade. Where such
fundamental phrases as "delivery" can have a far different meaning in the business than in the rest of the world.

For business terminology to be effective, phrases must mean the same thing throughout the industry. That is why the
International Chamber of Commerce created "INCOTERMS" in 1936. INCOTERMS are designed to create a
bridge between different members of the industry by acting as a uniform language they can use.

Each INCOTERM refers to a type of agreement for the purchase and shipping of goods internationally. There are
13 different terms, each of which helps users deal with different situations involving the movement of goods. For
example, the term FCA is often used with shipments involving Ro/Ro or container transport; DDU assists with
situations found in intermodal or courier service-based shipments.

INCOTERMS also deal with the documentation required for global trade, specifying which parties are responsible
for which documents. Determining the paperwork required to move a shipment is an important job, since
requirements vary so much between countries. Two items, however, are standard: the commercial invoice and the
packing list.

INCOTERMS were created primarily for people inside the world of global trade. Outsiders frequently find them
difficult to understand. Seemingly common words such as "responsibility" and "delivery" have different meanings in
global trade than they do in other situations.

In global trade, "delivery" refers to the seller fulfilling the obligation of the terms of sale or to completing a
contractual obligation. "Delivery" can occur while the merchandise is on a vessel on the high seas and the parties
involved are thousands of miles from the goods. In the end, however, the terms wind up boiling down to a few basic
specifics:

Costs: who is responsible for the expenses involved in a shipment at a given point in the shipment's journey?
  Control: who owns the goods at a given point in the journey?
Liability: who is responsible for paying damage to goods at a given point in a shipment's transit?

It is essential for shippers to know the exact status of their shipments in terms of ownership and responsibility. It is
also vital for sellers & buyers to arrange insurance on their goods while the goods are in their "legal" possession.
Lack of insurance can result in wasted time, lawsuits, and broken relationships.

INCOTERMS can thus have a direct financial impact on a company's business. What is important is not the
acronyms, but the business results. Often companies like to be in control of their freight. That being the case, sellers
of goods might choose to sell CIF, which gives them a good grasp of shipments moving out of their country, and
buyers may prefer to purchase FOB, which gives them a tighter hold on goods moving into their country.

In this glossary, we'll tell you what terms such as CIF and FOB mean and their impact on the trade process. In
addition, since we realize that most international buyers and sellers do not handle goods themselves, but work
through customs brokers and freight forwarders, we'll discuss how both fit into the terms under discussion.

INCOTERMS are most frequently listed by category. Terms beginning with F refer to shipments where the primary
cost of shipping is not paid for by the seller. Terms beginning with C deal with shipments where the seller pays for
shipping. E-terms occur when a seller's responsibilities are fulfilled when goods are ready to depart from their
facilities. D terms cover shipments where the shipper/seller's responsibility ends when the goods arrive at some
specific point. Because shipments are moving into a country, D terms usually involve the services of a customs
broker and a freight forwarder. In addition, D terms also deal with the pier or docking charges found at virtually all
ports and determining who is responsible for each charge.

Recently the ICC changed basic aspects of the definitions of a number of INCOTERMS, buyers and sellers should
be aware of this. Terms that have changed have a star alongside them.

EX-Works
One of the simplest and most basic shipment arrangements places the minimum responsibility on the seller with
greater responsibility on the buyer. In an EX-Works transaction, goods are basically made available for pickup at the
shipper/seller's factory or warehouse and "delivery" is accomplished when the merchandise is released to the
consignee's freight forwarder. The buyer is responsible for making arrangements with their forwarder for insurance,
export clearance and handling all other paperwork.

FOB (Free On Board)

One of the most commonly used-and misused-terms, FOB means that the shipper/seller uses his freight forwarder to
move the merchandise to the port or designated point of origin. Though frequently used to describe inland
movement of cargo, FOB specifically refers to ocean or inland waterway transportation of goods. "Delivery" is
accomplished when the shipper/seller releases the goods to the buyer's forwarder. The buyer's responsibility for
insurance and transportation begins at the same moment.

FCA (Free Carrier)

In this type of transaction, the seller is responsible for arranging transportation, but he is acting at the risk and the
expense of the buyer. Where in FOB the freight forwarder or carrier is the choice of the buyer, in FCA the seller
chooses and works with the freight forwarder or the carrier. "Delivery" is accomplished at a predetermined port or
destination point and the buyer is responsible for Insurance.

FAS (Free Alongside Ship)*

In these transactions, the buyer bears all the transportation costs and the risk of loss of goods. FAS requires the
shipper/seller to clear goods for export, which is a reversal from past practices. Companies selling on these terms
will ordinarily use their freight forwarder to clear the goods for export. "Delivery" is accomplished when the goods
are turned over to the Buyers Forwarder for insurance and transportation.

CFR (Cost and Freight)

This term formerly known as CNF (C&F) defines two distinct and separate responsibilities-one is dealing with the
actual cost of merchandise "C" and the other "F" refers to the freight charges to a predetermined destination point. It
is the shipper/seller's responsibility to get goods from their door to the port of destination. "Delivery" is
accomplished at this time. It is the buyer's responsibility to cover insurance from the port of origin or port of
shipment to buyer's door. Given that the shipper is responsible for transportation, the shipper also chooses the
forwarder.

CIF (Cost, Insurance and Freight)

This arrangement similar to CFR, but instead of the buyer insuring the goods for the maritime phase of the voyage,
the shipper/seller will insure the merchandise. In this arrangement, the seller usually chooses the forwarder.
"Delivery" as above, is accomplished at the port of destination.

CPT (Carriage Paid To)

In CPT transactions the shipper/seller has the same obligations found with CIF, with the addition that the seller has
to buy cargo insurance, naming the buyer as the insured while the goods are in transit.

CIP (Carriage and Insurance Paid To)

This term is primarily used for multimodal transport. Because it relies on the carrier's insurance, the shipper/seller is
only required to purchase minimum coverage. When this particular agreement is in force, Freight Forwarders often
act in effect, as carriers. The buyer's insurance is effective when the goods are turned over to the Forwarder.
DAF (Delivered At Frontier)
Here the seller's responsibility is to hire a forwarder to take goods to a named frontier, which usually a border
crossing point, and clear them for export. "Delivery" occurs at this time. The buyer's responsibility is to arrange with
their forwarder for the pick up of the goods after they are cleared for export, carry them across the border, clear them
for importation and effect delivery. In most cases, the buyer's forwarder handles the task of accepting the goods at
the border across the foreign soil.

DES (Delivered Ex Ship)

In this type of transaction, it is the seller's responsibility to get the goods to the port of destination or to engage the
forwarder to the move cargo to the port of destination uncleared. "Delivery" occurs at this time. Any destination
charges that occur after the ship is docked are the buyer's responsibility.

DEQ (Delivered Ex Quay)*

In this arrangement, the buyer/consignee is responsible for duties and charges and the seller is responsible for
delivering the goods to the quay, wharf or port of destination. In a reversal of previous practice, the buyer must also
arrange for customs clearance.

DDP (Delivered Duty Paid)

DDP terms tend to be used in intermodal or courier-type shipments. Whereby, the shipper/seller is responsible for
dealing with all the tasks involved in moving goods from the manufacturing plant to the buyer/consignee's door. It is
the shipper/seller's responsibility to insure the goods and absorb all costs and risks including the payment of duty
and fees.

DDU (Delivered Duty Unpaid)

This arrangement is basically the same as with DDP, except for the fact that the buyer is responsible for the duty,
fees and taxes.