Trade

Trade means the activity of buying and selling goods and services to earn profit. It involves transfer of ownership of goods from seller to buyer. Trade connects producers with final consumers and helps satisfy unlimited human wants.

Definition
Trade is the activity of transferring ownership of goods from one person or party to another within or outside the country to earn profit.

Types of Trade

Trade is divided on geographical basis:

1.Home Trade
2.Foreign Trade

Home Trade

Home trade is the buying and selling of goods within the same country. It is also called internal or domestic trade. Payment is made in local currency. Parties are called buyer and seller.

Types of Home Trade

1.Wholesale trade–Buying in large quantity from producer and selling to retailers.
2.Retail trade–Buying from wholesaler and selling to final consumers in small quantity.

Procedures of Home Trade

1.Enquiry–Buyer asks information about goods like price, quality, discount.
2.Quotation–Seller replies to enquiry with details.
3.Purchase order–Buyer sends order letter for goods.
4.Confirmation–Seller confirms acceptance of order.
5.Collection of goods–Seller collects goods from stock or market.
6.Packing–Goods packed according to nature.
7.Preparation of invoice–Seller prepares bill of goods.
8.Delivery of goods–Goods handed to transport company.
9.Carriage of goods–Transport company delivers goods to buyer.

Documents of Home Trade

1.Enquiry letter
2.Quotation letter
3.Order letter
4.Confirmation letter
5.Invoice
6.Receipt of goods

Foreign Trade

Foreign trade is the trade between two or more countries. It is also called international trade. Payment is made in foreign currency. Parties are called importer and exporter.

Types of Foreign Trade

1.Import trade–Buying goods from other country.
2.Export trade–Selling goods to other country.
3.Entreport trade–Importing from one country and exporting to another.

Procedures of Foreign Trade

Same steps as home trade but with more formalities:

1.Enquiry
2.Quotation
3.Purchase order
4.Confirmation
5.Collection of goods
6.Packing
7.Preparation of invoice(4 copies)
8.Delivery to shipping company
9.Carriage of goods

Bill of lading is issued by shipping company as proof of goods received.

Difference Between Home Trade and Foreign Trade

Terms and Conditions of Trade

1.Types of goods
2.Quantity of goods
3.Price of goods
4.Insurance
5.Terms of payment
6.Discount
7.Means of transportation
8.Means of payment

These help avoid disputes.

Invoice

Invoice is a document prepared by seller showing details of goods, price, discount and net amount payable.

Importance of Invoice

1.Shows details of goods
2.Helps calculate payment
3.Proof in disputes
4.Helps in bank payment
5.Helps transport verification

Items Included in Invoice

1.Name and address of buyer and seller
2.Invoice number and date
3.Order number
4.Quantity and price
5.Discount
6.Expenses
7.Net amount
8.Terms of payment
9.Signature

Types of Invoice

1.Loco invoice–Only cost and profit included.
2.FOB invoice–Cost plus charges upto shipboard.
3.C&F invoice–Cost plus freight, no insurance.
4.CIF invoice–Cost, insurance and freight included.
5.Franco invoice–All charges included in price.

Means of Payment

1.Cheque
2.Bank draft
3.Letter of credit
4.ATM card
5.Electronic transfer
6.Hundi

WTO

WTO is an international organization established on 1 January 1995 to regulate, supervise and promote international trade. It replaced GATT. Headquarters is in Geneva, Switzerland. Nepal became member on 23 April 2004.

WTO creates global trade rules, reduces trade barriers like tariffs and quotas, and ensures fair competition. It provides a platform where countries negotiate trade agreements. It also settles trade disputes between nations legally. Developing countries receive technical and training support. WTO covers trade in goods, services and intellectual property.

Functions

1.Manage trade agreements
2.Settle trade disputes
3.Reduce trade barriers
4.Monitor policies
5.Provide technical support

SAFTA

SAFTA means South Asian Free Trade Area. It is an agreement among SAARC countries (Nepal, India, Pakistan, Bangladesh, Bhutan, Maldives, Sri Lanka, Afghanistan). It came into effect on 1 January 2006.

SAFTA aims to increase regional trade by reducing customs duties and removing trade barriers. It encourages economic cooperation, industrial growth, employment and investment in South Asia. It helps least developed member countries by giving special facilities. It strengthens regional integration and improves living standards.

Functions

1.Remove trade barriers
2.Promote fair competition
3.Increase regional cooperation
4.Support least developed countries

Important Questions with Answers

1.What is trade?
Trade is buying and selling of goods to earn profit. It transfers ownership from seller to buyer.

2.Name types of home trade.
Wholesale trade and retail trade.

3.What is invoice?
Invoice is a written bill prepared by seller showing quantity, price, discount and net amount of goods.

4.Name two types of foreign trade.
Import trade and export trade.

5.What is bill of lading?
It is a receipt issued by shipping company acknowledging goods received for transport.

6.What is letter of credit?
It is a bank guarantee to exporter that payment will be made by importer’s bank.

7.What is loco invoice?
Invoice including only cost and profit of goods without transport charges.

8.Name two means of payment.
Cheque and bank draft.

9.What is WTO?
WTO is international organization regulating global trade.

10.What is entreport trade?
Importing goods from one country and exporting to another for profit.

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