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Foreign (or External) Trade

Foreign trade refers to the trade carried on between the citizens of two or more
countries of the world. It is an act of exchange of goods and services outside the
geographical territory of a country. It involves the exchange of goods and services in
foreign currencies. It is divisible into import trade , export trade and entrepot trade.
The purchase of goods from a foreign country is known as importing and the sale of
goods to a foreign country as exporting. In entrepot trade, goods are bought from a
country in order to sell them to some other country.

Foreign trade of the world exists because certain countries are especially fit for
producing certain articles which can be produced by other countries either with great
difficulty or not at all. It has, therefore, been found advantageous that each country
should produce only those goods which can be produce cheaply and exchanged her
surplus product with the goods produced by other countries as per requirement.
It is the application of division of labour on an international scale which has given
rise to foreign trade. Foreign trade enables each country of the world to satisfy the
large number of its wants more economically than is otherwise possible and thus
contributes to material prosperity appreciably.

Procedure/Course of home trade:
Procedure refers to the activities to be fulfilled during the course of home trade. There
are certain steps which are common in home trade, known as procedures. These
procedures are as follows:

i. Enquiry of goods : Enquiry is the first step of home trade. A buyer seeks the
information about the goods or service s/he wants to buy. Inquiry about quality,
price, credit facilities, mode of payment, discount, etc. is done by buyer through
different sources such as letter, telephone, Internet, etc.
ii. Quotation : The reply given to an inquiry is known as a letter of quotation, and
the price quoted there on known as quotation. A letter of quotation must give
the correct description of the goods which can be supplied, their prices, the
terms of payments, the time of delivery and other conditions.
iii. Placing an order : The buyer would compare the quotation which he receives
from various sellers and would place an order with the firm with whose
quotations and terms he is most satisfied. An order must be complete in itself.
It should mention full details regarding the goods and other conditions, the
quality and quantity of goods, time and place of delivery and other particulars
which the buyer wants particularly to emphasize.
iv. Acknowledgment of the order : It is the process of giving information to buyer
by seller that he received the purchase order. Generally letter of acknowledgment
contains all the particulars contained in the order so that the purchaser may
correct any mistake that might have crept unnoticed.
v. Collection and packing of goods : The seller collects the goods to be sent to
buyer after the letter of acknowledgment. If he does not have sufficient goods, he

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