Note on Foreign Trade

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Foreign Trade
Foreign Trade

The trade which is carried on between two or more countries is called foreign trade. It is conducted between the individuals or organizations of two or more countries. It is the international trade in which the payment is made in foreign currencies. It is divisible into import trade and export trade. The purchase of goods from a foreign country is called importing and the sale of goods to a foreign country is called exporting. The foreign trade exists because all types of goods necessary for human beings cannot be produced by a single country due to the lack of raw materials, skilled manpower, capital and technology.

Documents used in Foreign Trade

  1. Enquiry letter
    Enquiry
    Enquiry

    It is the first step in which the importer writes and sends a letter of enquiry to the exporter, asking about the quality, quantity, price and other conditions of trade like credit facility, modes of payment, etc. This is the letter which contains full questions in regard of goods and terms and conditions of trade.

  2. Reply letter
    It is the second step of the trade. After receiving the letter of enquiry from importers, the exporters sends a letter to the buyer which is called reply letter. It is also called Quotation Letter or Price List. In this letter, all the answers to the enquiry in regard of goods and terms and conditions of trade are given to the importer.

  3. Order letter
    After receiving quotation letter from different exporters, the importer analyzes them carefully and selects the most favorable one. Then, the importer sends purchase order through a letter which is called order letter. Since, it is the ordering for the purchase of goods, an importer should draft it very carefully by stating the quality and quantity of goods clearly and correctly.

  4. Acknowledgement letter
    After receiving the order of purchase of goods, the exporter then writes a letter to inform to the importer about the receipt of the order and its acceptance. This letter also confirms the right delivery of goods on right time.

  5. Invoice
    Invoice
    Invoice

    After making the goods ready for delivery, a bill is prepared according to L.C. number to give details about the unit price, total price, qualities, and quantities of goods being dispatched and other information like discount which is called invoice. So, an invoice is a bill of goods prepared by an exporter and sent along with dispatched goods. It is generally prepared by four copies – 1 copy for an importer, 2 copies for the transport company and 1 copy is kept by the exporter himself.

  6. Bill of Lading
    Bill of lading
    Bill of lading

    The sixth document used in foreign trade is a bill of lading. In foreign trade, the exporter generally dispatches the goods to the importer through the ship with the help of a special document known as a bill of lading. The exporter obtains the bill of lading on placing the goods on board the ship from the shipping company. The bill of lading contains the full description of the type, quantity and condition of the goods placed on board the ship and the name of the place where the goods are to be carried.

  • The trade which is carried on between two or more countries is called foreign trade.
  • Foreign trade is conducted between the individuals or organizations of two or more countries. 
  • The purchase of goods from a foreign country is called importing and the sale of goods to a foreign country is called exporting.
  • The foreign trade exists because all types of goods necessary for human beings cannot be produced by a single country due to the lack of raw materials, skilled manpower, capital and technology.
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Very Short Questions

The following are the main documents of foreign trade:

  1. Enquiry letter:
    It is the first step in which the importer writes and sends a letter of enquiry to the exporter, asking about the quality, quantity, price and other conditions of trade like credit facility, modes of payment, etc. This is the letter which contains full questions in regard of goods and terms and conditions of trade.
  2. Reply letter:
    It is the second step of trade. After receiving the letter of enquiry from importers, the exporters sends a letter to the buyer which is called reply letter. It is also called Quotation Letter or Price List. In this letter, all the answers to the enquiry in regard of goods and terms and conditions of trade are given to the importer.
  3. Order letter:
    After receiving quotation letter from different exporters, the importer analyzes them carefully and selects the most favorable one. Then, the importer sends purchase order through a letter which is called order letter. Since, it is the ordering for the purchase of goods, importer should draft it very carefully by stating the quality and quantity of goods clearly and correctly.
  4. Acknowledgement letter:
    After receiving orders of purchase of goods, the exporter then writes a letter to inform to the importer about the receipt of the order and its acceptance. This letter also confirms the right delivery of goods on right time.
  5. Invoice:
    After making the goods ready for delivery, a bill is prepared according to L.C. number to give details about the unit price, total price, qualities, and quantities of goods being dispatched and other information like discount which is called invoice. So, invoice is a bill of goods prepared by exporter and sent along with dispatched goods. It is generally prepared by four copies – 1 copy for importer, 2 copies for transport company and 1 copy is kept by the exporter himself.
  6. Bill of Lading:
    The sixth document used in foreign trade is bill of lading. In foreign trade, the exporter generally dispatches the goods to the importer through the ship with the help of a special document known as bill of lading. The exporter obtains the bill of lading on placing the goods on board the ship from the shipping company. The bill of lading contains the full description of the type, quantity and condition of the goods placed on board the ship and the name of the place where the goods are to be carried.

The act of buying and selling of goods and services between the persons or parties of two or more than different countries is called foreign trade. Following are the three types of foreign trade:

  1. Export Trade:
    The act of selling or supplying of the goods to the buyer of other countries manufactured inone's country is known as export trade.
  2. Import Trade:
    The act of buying or purchasing of the goods from the seller of other countries manufactured in foreign countries is known as import trade.
  3. Entrepot Trade:
    The act of buying goods from the seller of one country with an aim of selling them to another country or other countries is known as entrepot trade.

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  • The trade which is carried on between two or more countries is called ______.

    domestic trade
    internal trade
    home trade
    foreign trade
  • The purchase of goods from a foreign country is called ______.

    importing
    begging
    shopping
    exporting
  • The sale of goods to a foreign country is called ______.

    importing
    donating
    exporting
    helping
  • The foreign trade exists because all types of goods necessary for human beings cannot be produced by a single country due to the lack of ______.

    raw materials
    skilled manpower
    all the options are correct
    capital
  • In foreign trade, the exporter generally dispatches the goods to the importer through the ship with the help of a special document known as ______.

    a letter of credit


    a confirmation letter


    an invoice


    a bill of lading


  • The bill of lading contains the full description of the ______.

    type
    the name of the place where the goods are to be carried
    quantity and condition of the goods placed on board the ship
    all the options are correct
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Diksha Pudasaini

Four causes for preparing invoice in foreign trade ?


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