SS1 Commerce Lesson Note on Procedure for International Trade

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TOPIC: INTERNATIONAL TRADE

CONTENT:

1. Procedure for international trade
2. Balance of trade and balance of payment

SUB-TOPIC 1: PROCEDURE FOR INTERNATIONAL TRADE

A businessman who wishes to engage in international trade should follow certain procedures. The – step – by step procedures are:

1. Contact should be established between importer and exporter different means e.g. letter of inquiry, telephone, internet advertising etc.
2. A quotation, outlining the description, price and features of the products are furnished by the exporter in response to the letter of inquiry.
3. If the intending importer is satisfied with quotation, he will place an order with the manufacturer. The indent will show details of the goods, price and date of delivery.
4. The next step is to make arrangement for payment through any agreed means of payment e.g. western money transfer, documentary credit, telegraphic mail transfer etc.
5. Then, an arrangement of the goods to be shipped through a shipping company will be made. The shipping agent will get all the necessary documents e.g. shipping note, calling forward note etc.
6. The exporter prepares and sends copies of bill of lading to the importer in advance. Other documents that will accompany the consignment will be prepared and sent.
7. On arrival of the goods, the clearing agent will process and complete all necessary documents. He will check the manifest to ensure the goods are on board. The custom will assess the consignment and compute the duties to be paid.
8. The goods will be taken to the warehouse after all necessary documentation have been completed.

EVALUATION

1. Name 2 procedures needed in external trade

SUB-TOPIC 2: BALANCE OF TRADE AND BALANCE OF PAYMENT

BALANCE OF TRADE: is the difference between the value of a country’s visible exports and visible imports over a given period of time. It is favorable when a country’s visible exports are more than visible imports. It is unfavorable when a country’s visible imports are more than visible exports.

TERMS OF TRADE: This is the rate at which a country’s export is exchanged for its import. It is the relationship between the prices of exports and prices of imports. It is measured as the ratio of index of export prices to index of import price expressed as a percentage. It is given as :

Terms of trade                           =       index of export price    ×         100

Index of imports price               1

A country has favorable terms of trade if the prices of its exports are higher than the prices of its imports and unfavorable if the index of imports is greater than exports.

BALANCE OF PAYMENTS: This is a statement or record showing the relationship between a country’s total payments to other countries and its total receipts from foreign countries during a specific time period, usually a year. It is the summary of a country’s financial transactions with the rest of the world. If the total receipts from foreigners exceed the total payments, the Balance of payment is said to be favorable. On the other hand, if the total payments to the foreigners exceed the total receipts, the balance of payment is unfavorable.

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