Importance of Foreign Trade

1. Full Utilization of Resources: Developing countries don’t have the proper technology to fully utilize their resources, so by exporting their resources to developed countries they make sure that their resources get fully utilized.

2. Service Sector Trade: Global trade provides new opportunities to the service sector. This improves other sectors related that are related to the service sector like banking, insurance, and information technology.

3. Getting rid of surplus production: When a country has excess resources, they export them to other countries for better utilization.

4. Competitiveness: Foreign trade promotes healthy competition among different countries and entrepreneurs.

5. Global Growth: It acts as the intermediary between producers and consumers in the global markets. Ultimately leads to benefits for the exporter as well as the importer.

Foreign Trade is the exchange of goods and services between two countries in the international market. Foreign Trade facilitates both buyers and producers to buy and sell goods in the international market. Goods travel from one country to another country. Foreign trade provides raw materials and finished goods to countries, that have a scarcity of those products. Natural resources are not equally available in all the countries. Some have an abundance of certain resources and some lack those resources completely. So, foreign trade helps both these countries to meet their requirements through imports and exports. By exporting goods, a country finds the market for its excess resources, and with imports a country fulfils its need for scarce resources.

For example: During the Diwali season, the Indian Market faces huge demand for decorative lights and bulbs. To fulfil this demand Indian market choose to import these items from China.

Foreign trade helps to expand the reach of sellers to global markets and thus helps to create more employment opportunities and raise the standard of living. The most commonly traded items through foreign trade are consumer goods and capital goods such as television, clothing, machinery, etc. Other transactions involve raw materials and services. Private and central banks play an important role in facilitating this trade between the two countries.