(a) What is foreign trade? (b) Explain four ways by which foreign trade is different from home trade. (c) State five reasons why countries restrict foreign ...
Question 1 Report
(a) What is foreign trade?
(b) Explain four ways by which foreign trade is different from home trade.
(c) State five reasons why countries restrict foreign trade.
Answer Details
(a) What is foreign trade?
Foreign (external) trade is the buying and selling of goods and services between one country and another. It includes import trade, export trade and entrepot (re-export) trade.
(b) Four ways foreign trade differs from home trade
| Foreign trade | Home trade |
|---|---|
| Carried on between different countries. | Carried on within one country. |
| Uses different currencies, needing foreign exchange. | Uses one common national currency. |
| Faces customs duties, tariffs and trade barriers. | Usually free of customs duties. |
| Requires many documents (bill of lading, invoice, etc.) and language differences arise. | Few documents needed and a common language is used. |
(c) Five reasons why countries restrict foreign trade
- To protect infant (young) home industries from foreign competition.
- To reduce a deficit in the balance of payments.
- To raise government revenue through import and export duties.
- To prevent the importation of dangerous or harmful goods.
- To conserve scarce foreign exchange and prevent dumping of foreign goods.
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