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Introduction Tointernational Trade PDF

The document provides an overview of international trade finance, covering its meaning, background, advantages, and theories. It discusses the role of banks in facilitating international trade and contrasts free trade policies with protectionism. Additionally, it highlights the benefits and challenges of international trade, including specialization, comparative advantage, and barriers to trade.

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factorbeneth37
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5 views

Introduction Tointernational Trade PDF

The document provides an overview of international trade finance, covering its meaning, background, advantages, and theories. It discusses the role of banks in facilitating international trade and contrasts free trade policies with protectionism. Additionally, it highlights the benefits and challenges of international trade, including specialization, comparative advantage, and barriers to trade.

Uploaded by

factorbeneth37
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
You are on page 1/ 16

INTERNATIONAL TRADE

FINANCE BFU 07207


TOPIC 1

INTRODUCTION TO INTERNATIONAL TRADE


FINANCE
To be covered:-

 Meaning of IT AND ITF


 Background of IT
 Theories related to international trade
 Advantages of IT and ITF.
 Trade policies Vs free trade policies.
 Role of banks and financial institutions international trade.
Introduction
Human desires for goods and services are unlimited, yet our resources are limited.
 Thus, one of our most important tasks is to seek new knowledge necessary to
bridge the gap between desires and resources.
 The advantages of economic interdependence between persons and nations
centre mainly on the efficiency of specialization.
 Specialization of function or division of labour allows each person or nation to
utilize any peculiar differences in skills and resources in the most economical manner
BACKGROUND OF INTERNATIONAL
TRADE
 International trade allows us to expand our markets for both goods and services that
otherwise may not have been available to us.
 It is the reason why you can pick between a Japanese, German or American car.
 As a result of international trade, the market contains greater competition and therefore more
competitive prices, which brings a cheaper product home to the consumer.
 Importers and exporters have certain concerns such as:
 Exporters want to be certain that they are paid when their goods have been shipped or dispatched
because the goods will be out of their control.
 Importers want to be certain that they receive goods that conform to what has been ordered.
 Commercial banks act as intermediaries between importers and exporters.
 They have insight and wide practical experience in foreign trade coupled with legal knowledge of
provision in different countries
What is international trade?

International trade finance is about the way in which business located in different
countries trade with one another. Principally, it covers;
• Terms of trade
• Documents used in international transactions
• Methods of insurance, and Financing schemes on arrangements.
International trade Simply means the exchange of goods and services between countries.
• This type of trade gives rise to a world economy, in which prices, or supply and demand,
affect and are affected by global events.
• A product that is sold to the global market is an export, and a product that is bought from
the global market is an import.
• Imports and exports are accounted for in a country's current account in the balance of
payments
ADVANTAGES OF INTERNATIONAL TRADE

 Increased Efficiency and Productivity: International trade allows countries to specialize in the production of goods and
services in which they have a comparative advantage. This specialization leads to increased efficiency and productivity as
resources are allocated to their most productive uses. For example, countries with abundant natural resources might
specialize in the extraction and export of those resources, while countries with advanced technological capabilities might
focus on manufacturing high-tech products.

 Access to a Larger Market: By engaging in international trade, businesses gain access to a much larger market beyond their
domestic borders. This larger market size provides opportunities for increased sales and revenue, which can lead to
economies of scale and lower average costs per unit produced. Additionally, access to diverse markets reduces dependency
on the domestic market, making businesses less vulnerable to fluctuations in local demand.

 Exchange of Goods and Services: International trade facilitates the exchange of goods and services between countries,
allowing them to obtain products that they cannot produce domestically or can produce at a higher cost. This exchange
enables consumers to access a wider variety of goods and services, including products that are not available or are more
expensive domestically. For example, countries with climates unsuitable for growing certain crops can import those goods
from countries where they can be produced more efficiently.
 Stimulates Economic Growth: International trade stimulates economic growth by
promoting competition, innovation, and investment. Competition from foreign producers
encourages domestic firms to improve their efficiency and quality to remain competitive.
Moreover, exposure to international markets often leads to the adoption of new
technologies and best practices, driving innovation and productivity growth. Additionally,
international trade attracts foreign investment, which can spur economic development
through infrastructure projects, job creation, and knowledge transfer.

 Beneficial for Developing Countries: International trade can be particularly beneficial for
developing countries. It provides opportunities for these nations to integrate into the global
economy, access foreign markets, and attract investment. Trade can also facilitate the
transfer of technology, skills, and knowledge, which can help developing countries
diversify their economies and move up the value chain. Furthermore, trade can generate
employment opportunities, alleviate poverty, and foster economic development in these
countries.
Disadvantages of International Trade

 Imported goods from industrialized countries often pose a competition


threat to local industries.
 If the importing country is having no proper checks and restrictions, may
be turned into a dumping ground of goods which are of poor quality,
 Dependence of one country on another for an important commodity may
sometimes force the importing country to tolerate some undesirable
gestures from the exporting country
INTERNATIONAL TRADE THEORIES
Definition of 'Specialization'
A method of production where a business or area focuses on the production of a limited
scope of products or services in order to gain greater degrees of productive efficiency
within the entire system of businesses or areas.
Definition of 'Comparative Advantage'
The ability of a firm or individual to produce goods and/or services at a lower opportunity
cost than other firms or individuals.
 A comparative advantage gives a company the ability to sell goods and services at a
lower price than its competitors and realize stronger sales margins.
 Having a comparative advantage - or disadvantage - can shape a company's entire
focus.
 A comparative advantage is not the same as an absolute advantage.
 The latter implies that one is the best at something, while the former relates more to the
costs of the particular endeavour
Definition of 'Opportunity Cost'
 The cost of an alternative that must be forgone in order to pursue a certain action.
 Put another way, the benefits you could have received by taking an alternative
action.
 The difference in return between a chosen investment and one that is necessarily
passed up.
Definition of 'Absolute Advantage'
 The ability of a country, individual, company or region to produce a good or service
at a lower cost per unit than the cost at which any other entity produces that good
or service.
 Entities with absolute advantages can produce something using a smaller number of
inputs than another party producing the same product.
FREE TRADE Vs PROTECTIONISM POLICY

 A free trade policy is a set of principles and agreements aimed at minimizing or eliminating
barriers to trade between countries. The central goal of a free trade policy is the promotion
of unrestricted movement of goods, services, and factors of production (such as labour and
capital) across international borders. Here are some key characteristics of a free trade
policy.
 Overall, a free trade policy seeks to create a conducive environment for international trade
by reducing barriers and promoting a level playing field for businesses. While proponents
argue that free trade leads to economic growth and prosperity, critics raise concerns about
potential adverse effects on domestic industries, employment, and income distribution.
Protectionism - holds that regulation of international trade is important to
ensure that markets function properly.
• Advocates of this theory believe that market inefficiencies may hamper the
benefits of international trade and they aim to guide the market accordingly.
• Protectionism exists in many different forms, but the most common are
tariffs, subsidies and quotas.
International Trade Barriers

• Economic - such as trade restrictions e.g. quotas, tariffs, bars etc; or foreign
exchange fluctuations.
• Cultural - such as differences in language and customs necessitation the
use of an agent.
• Political and legal -such as political embargoes, and laws and regulations in
one country allowing limited or on trade possibilities with another country or
countries. The limitation being referred here may be in the form of exchange
control regulations, export and import quality standards.
• Geographical - In the case where there is difficult infrastructure network
between countries
The role of banks in International Trade

The role of banks in international trade involves:


• Keeping the account of the exporters and importers,
• Facilitation of payments for exports and imports through the use of branches
and correspondent banks around the world
• Buying and selling foreign currency.
• Providing finance to exporters and importers by way loans and overdraft,
pre export financing, negotiation of documents and acceptance facilities.
• Handling documentations relating to exports and imports
Providing information and advice to exporters and importers.
THE END

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