Reviewed by Aug 27, 2020| Updated on
What is a trade?
Trade is a fundamental economic concept involving the purchase and sale of goods and services, with compensation paid to a seller by a purchaser or the exchange of goods or services between parties. Trade can take place in a producer-consumer economy.
International trade allows countries to expand markets for goods and services that might not have been available to them otherwise. That's why an American consumer can choose between a Japanese, German, or American car. As a result of international trade, there is greater competition on the market and hence more competitive prices, taking the consumer home to a cheaper product.
How trade works?
Trade refers widely to transactions that range in complexity from the exchange of baseball cards between collectors to multinational policies that establish protocols between countries for imports and exports. Trading is supported through three main types of exchanges, irrespective of the complexity of the transaction.
Global trade between nations makes it possible for consumers and countries to be exposed to goods and services that are not available in their own countries. Food, clothing, spare parts, oil, jewellery, wine, stocks, currencies, and water can be found on the global market. There is also trading of services: tourism, finance, accounting, and transportation.
An export is a product sold on the global market, and an import is a product purchased from the global market. In the balance of payments, imports and exports are accounted for in the current account of a country.
What facilitates trade?
Money, which also acts as an account unit and a value store, is the most popular exchange medium, offering a variety of ways to transfer funds between buyers and sellers, including cash, account transfers, and credit cards. Money's attribute as a store of value also ensures that future purchases of equivalent value can be made using funds received by sellers as payment for goods or services.