MOTIVES FOR INTERNATIONAL TRADE & FOREIGN INVESTMENT
International Trade is the exchange of goods and services among the nations of the world. It is also termed as foreign trade when viewed from the perspective of a given country, the international exchange of production is comparable to any exchange, except that buyers and sellers are from different countries. The study of International Trade highlights an important economic principle, the law of comparative advantage, which helps to explain not only why nations engage in trade but why individuals engage in trade. A related area of study is international finance, both of which are part of the broader study of international economics.
International Trade is the exchange of goods and services among countries. One nation produces goods that are purchased by another. One nation exports, another nation imports. International Trade abides by the same basic economic principles as standard exchanges, such as those analysed by the market model. The unique feature of International Trade is that buyers and sellers reside in different countries.
This residency difference of International Trade, however, leads to a couple of considerations.
* First, because different nations use different domestic currencies, International Trade inevitably involves an exchange of currencies. Currency exchange, which takes places through the foreign exchange market, is central to the study of international finance.
* Second, because different nations are ruled by different governments, which are inclined to look after their different national interests, International Trade inevitably involves government trade policies. These trade policies typically promote exports from a nation while restricting imports to the nation.
Another important consideration that arises in study of International Trade is the law of comparative advantage, a key economic principle that applies to other areas as well. This law explains how...