Foreign Trade of India — Economics STD 12 Commerce / Arts — Question

Trade means buying and selling of goods and services. Foreign trade means when goods and services are exchanged between two or more countries.
According to Wasserman and Hultman “International trade consists of transaction between residents of different countries”.
Role of foreign trade :

• Brings reputation and helps earn goodwill : Exporting country can earn reputation and goodwill in the international market. Eg. Japan in electronic goods- Panasonic, Canon, Sony, Hitachi. Germany in Automobile – BMW, Audi, Mercedes- Benz, Volkswagen, Porsche. USA in food- McDonalds, KFC, USA in computers – Dell HP, IBM.
• Division of labour and specialisation: It helps to increase the productivity of a firm or economy. Under specialisation specific work is given to the workers within a production process. Eg. Some workers will design cars, some workers will work on assembly lines, some workers will work on testing cars, some workers will work on marketing of cars.
• To earn foreign exchange: Foreign trade is playing very important role in earning foreign exchange. This foreign exchange can be used to import advanced technology and machinery from developed countries.
• Encourages investment : Foreign trade leads to an increase in total investment in an economy. The rise in investment help to produce more goods and services for export.
• Availability of multiple choices : Due to availability of imported goods, it helps to improve standard of living of the people in the country.
• Stability in price level : Foreign trade helps to control the changes in price level by keeping demand and supply position stable,
• Helpful during natural calamities : Foreign trade enables a country to import food grains and medicines from other countries to help the affected people.
• Optimum allocation and utlization of resources : Due to foreign trade those goods are produced which have demand in international market. There is maximum allocation and utlisation of resources to produce more goods and services for export.
• Promotes world peace : Foreign trade is bringing countries closer which leads to better understanding, co-operation and integration.