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How is home trade different from external trade?

Answer:

Ans.     Internal trade takes place between the geographical boundaries of a nation, whereas international trade takes place between different nations.

1. In the trade of any nation, the volume of its internal trade will be more than that of external trade. Internal trade accounts for about 95% of the total volume of the trade of a country, whereas foreign trade accounts for only about 5% of the total volume of the trade of a country.

2. Though both internal trade and international trade are based on the principle of specialization or division of labour, regional specialization within a country leads to internal trade or inter-regional trade, whereas country wise specialization leads to international trade.

3. In the case of home trade, there is much scope for the operation offerees of demand and supply. But, in the case of foreign trade, there is not much scope for the full operation of the forces of demand and supply.

4. The number of documents of trade required for home trade is less than the required for foreign trade.

5. Home trade is subject to regulations and laws of only one country, whereas foreign trade is subject to regulations and laws of two or more countries.

6. Home trade is, generally, free from restrictions, whereas foreign trade is subject to a number of restrictions.

7. The cost of transport in home trade is much less than that in foreign trade. The interval between the dispatch of goods by the seller and the receipt of the same by the buyer in home trade is not much.

9. Goods are subject to greater risk in foreign trade than in home trade.

10. As goods are subject to more risks in foreign trade, in the case of international trader, goods are, generally, insured against the risks.

11. Home trade involves the currency of only one country whereas foreign trade involves the currencies of two or more countries.