Trade may be classified, geographically, as follows.
Internal Trade. The trade that occurs with the limits of a country is called the internal trade. In this trade, the retail and wholesale traders buy the commodities from the producers and sell to the consumers. Internal trade may be further divided as local trade and rural trade.
Local Trade. It is a trade that occurs either on a daily basis or on some week days, within a place. For example, these include the daily markets of the towns and cities and the weekly markets of the rural areas. In these markets, the producers themselves sell their products to consumers, more often than not. Perishable commodities such as the flowers, fruits, vegetables and such commodities as those of the daily essentials are traded here.
Rural Trade. All commodities required by the parts of a country are not normally produced in all parts of that country. Also, there is a specific rural market for most of these commodities. Hence, trading is generally seen between different parts of that country. For example, the coffee that is grown in south India is sold in all parts of the country. Similarly, the wheat that is grown mostly in north India is sold in all parts of the country.
International Trade. It is a trade between the countries of the world. No country can exist in isolation. They have to import those commodities they themselves do not produce, but require nevertheless. Generally, agricultural and mineral products are exported from the developing to the developed countries. In return, scientific instruments, machineries and electronic equipments are imported by the developing from the developed. In international trade, there are two major types.
Bilateral Trade. In this trade, a country gives a commodity it has in surplus to another in return for an equally valuable commodity it requires and directly from that country.
Multilateral Trade. In this trade, a country exports commodities it produces to another and gets what it requires from a third using the money it receives from the importer of its commodities.
As each country has its own currency, it posed a problem in the multilateral trade as to which currency to be used in transactions. In the beginning, the trade was conducted either with the American dollar or with the British sterling pounds. Later, however, the currencies of the developed countries such as Japan (Yen), Germany (Deutsch Marks)
and France (Francs) were accepted. It was because there were not much of differences between the value of these currencies. International Monetary Fund (IMF) has been established under the auspices of the United Nations which permits the Special Drawing Rights (SDR) as the international currency. Every member country has its own SDRs depending on its share in the IMF. Each and every country could import commodities from other countries using these SDRs as the currency. The IMF thus provides loans for the member countries for the conduct of international trade.
We could understand a country's level of economic development from the commodities it exports and the commodities it imports. For example, as we have seen, the developing countries largely export resources and agricultural products and import high cost machines and consumer products. On the other hand, the developed countries import more of the raw materials and agricultural products, convert them into machines and consumer products and then export them to the developing countries. Every country, in its efforts to achieve a favourable trade balance, tries harder with actions to decrease the imports and increase the exports. To discourage imports, it imposes customs duty. And to increase exports, it provides subsidies. As a result, international trade is affected. To avoid this difficulty, therefore, many countries have created trade blocs.
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