TRADE

Given by : Janvi Verma

Roll no : 18411108
Class : MBA llnd sem
What is trade ? Meaning and nature

Trade is a basic economic concept involving the buying and

selling of goods and services, with compensation paid by a buyer
to a seller, or the exchange of goods or services between parties.
The most common medium of exchange for these transactions is
money, but trade may also be executed with the exchange of
goods or services between both parties, referred to as a barter,
or payment with virtual currency, the most popular of which is
bitcoin. In financial markets, trading refers to the buying and
selling of securities, such as the purchase of stock on the floor of
the New York Stock Exchange (NYSE).

Trade is essential for satisfaction of human wants, Trade is

conducted not only for the sake of earning profit; it also provides
service to the consumers. Trade is an important social activity
because the society needs uninterrupted supply of goods forever
increasing and ever changing but never ending human wants.
 TRADING COMPANIES

Trading companies are businesses working with different kinds

of products which are sold for consumer, business or
government purposes. Trading companies buy a specialized
range of products, maintain a stock or a shop, and deliver
products to customers.

Different kinds of practical conditions make for many kinds of

business. Usually two kinds of businesses are defined in trading.
Importers or wholesalers maintain a stock and deliver products
to shops or large end customers. They work in a large
geographical area, while their customers, the shops, work in
smaller areas and often in just a small neighbourhood.

Today "trading company" mainly refers to global B2B traders,

highly specialized in one goods category and with a strong
logistic organization.

Changes in practical conditions such as faster distribution,

computing and modern marketing have led to changes in their
business models.
Types of trade
Trade can be divided into following two types, viz.,
 Internal or Home or Domestic trade.
 External or Foreign or International trade

1. Internal trade

Internal trade is also known as Home trade. It is conducted

within the political and geographical boundaries of a country. It
can be at local level, regional level or national level. Hence trade
carried on among traders of Delhi, Mumbai, etc. is called home
trade.

 Internal trade can be further sub-divided into two groups, viz.,

 Wholesaler trade : It involves buying in large quantities from

producers or manufacturers and selling in lots to retailers for
resale to consumers. The wholesaler is a link between
manufacturer and retailer. A wholesaler occupies prominent
position since manufacturers as well as retailers both are
dependent upon him. Wholesaler act as a intermediary
between producers and retailers.

 Retail trade : It involves buying in smaller lots from the

wholesalers and selling in very small quantities to the
consumers for personal use. The retailer is the last link in the
chain of distribution. He establishes a link between
wholesalers and consumers. There are different types of
retailers small as well as large. Small scale retailers includes
hawkers, pedlars, general shops, etc.
2.. External trade

External trade also called as Foreign trade. It refers to buying and

selling between two or more countries. For instance, If Mr.X who
is a trader from Mumbai, sells his goods to Mr.Y another trader
from New York then this is an example of foreign trade.

 External trade can be further sub-divided into three groups,

viz.,

 Export trade: When a trader from home country sells his

goods to a trader located in another country, it is called export
trade. For e.g. a trader from India sells his goods to a trader
located in China.
 Import trade : When a trader in home country obtains or
purchase goods from a trader located in another country, it is
called import trade. For e.g. a trader from India purchase
goods from a trader located in China.

 Entreport trade : When goods are imported from one country

and then re-exported after doing some processing, it is called
entreport trade. In brief, it can be also called as re-export of
processed imported goods. For e.g. an indian trader (from
India) purchase some raw material or spare parts from a
japanese trader (from Japan), then assembles it i.e. convert
into finished goods and then re-export to an american trader
(in U.S.A).
 Advantages of trade

1.It provides a foundation for international growth :

Companies that are involved in exporting can achieve levels of
growth that may not be possible if they only focus on their
domestic markets. This allows brands and businesses an
opportunity to achieve sustained revenues from a diversified
portfolio of customers in several markets instead of a limited
customer base in a single home market.

2.Trade improves financial performance:

Brands and businesses which assert themselves in trade work
can increase their financial performance.

3.Trade encourages market competitiveness:

When a brand and business competes in several markets
simultaneously, then it must focus on its competitiveness for it
to be able to thrive. By observing a larger range of trends
because of their greater level of global market access, brands
and businesses can focus on quality, design, and product
development improvements so that they can continuously
improve and diversify.

4.Revenue streams have some protection:

Although all risk cannot be eliminated from trade, a series of
contracts, insurance, and financial instrument trading can help to
protect the revenue streams a brand and business is able to
develop.

5.Optimal use of natural resources: Trade helps each country to

make optimum use of its natural resources. Each country can
concentrate on production of those goods for which its
resources are best suited. Wastage of resources is avoided.

6.Availability of all types of goods:

It enables a country to obtain goods which it cannot produce or
which it is not producing due to higher costs, by importing from
other countries at lower costs.

Disadvantages of trade

1.There can be severe exchange rate risks :

Many businesses focus on emerging markets for their products
or services because it can greatly extend the lifespan of them.
This also means the exchange rates in those emerging markets
may fluctuate wildly, making it difficult to forecast finances for
budgeting purposes.

2.Trade increases the risk of information theft:

Going into an international market with a product or service
increases the risk of another brand or business stealing
proprietary information, marketing concepts, or even a personal
identity. China has a reputation of doing this, even if there isn’t a
business presence in the local market.

3.Mis-utilisation of Natural Resources:

Excessive exports may exhaust the natural resources of a country
in a shorter span of time than it would have been otherwise. This
will cause economic downfall of the country in the long run.
4.Import of harmful goods:
Import of spurious drugs, luxury articles, etc. adversely affects
the economy and well-being of the people.

5.Storage of goods :
Sometimes the essential commodities required in a country and
in short supply are also exported to earn foreign exchange. This
results in shortage of these goods at home and causes inflation.
For example, India has been exporting sugar to earn foreign
trade exchange; hence the exalting prices of sugar in the
country.

The history of trade and barter system

Items that are used as money often have little value in and of
themselves. For example, the paper used to print money is not
particularly valuable. Money has value because it is an exchange
medium that people understand and accept as such. When
everyone accepts that a bill or a coin has value, people can use it
as a form of payment to purchase goods or services. Before
money existed, people used other systems to perform
exchanges. Bartering involves a direct trade for goods and
services. Although some aspects of this transaction are similar to
the exchange of money, bartering required time as people
hammered out the terms of the deal. Utilizing money as the
medium for trade simplified transactions significantly. Trade and
barter were precursors to the monetary system used in today's
society. Although trade and barter may seem almost archaic,
they were the business solutions for people who lived before the
convenience of credit card processing.
Bartering is the process of trading services or goods between
two parties without using money in the transaction. When
people barter, everyone benefits because they receive items or
services they need or want. Bartering also has an advantage
because even people without money
can get something they need. Bartering might involve trading a
service for an item. For example, you could agree to perform
yard work for someone in exchange for a bushel of apples from a
tree in their yard. When people choose to barter to meet a need,
they can save their money for other needs.

Importance of trade

Trade has always been important because no country can

produce all the products and services that the population needs.
To give you an example, imagine that each country is a person
like yourself. You can’t build a modern house by yourself, you
can’t make a car by yourself, you can’t generate the electricity by
yourself. You rely on the services provided by other people.
Others make the things you need, while you specialize in one
service. Your work is a service to others, and others pay you for
it.

The same thing applies to countries. A country cannot produce

everything. Sometimes countries specialize in the production of
certain commodities, manufactured products or services. Other
countries like the U.S have a very diverse economy. However,
diverse economies are often very complex and have a complex
supply chain, where products are made of subcomponents, often
originating from several different countries. For example, Ford
may produce almost all of its cars in the United States, but many
times components come from other places, like Mexico, or
Canada. We buy from them to make new things. We make
money, they make money…

Therefore, trade is very important for national and global

economic growth, as we all depend on each other .