International Trade/Global Finance

CHARACTERISTIC OF TRADE

1. Independent Currency System.

Purchase and sales of goods within a
domestic market are, as a general rule, negotiated with money or currency that is uniform in all parts of the country.

Thus, a business transaction in Manila involving the sale of sewing machine calls for the use of medium of exchange, which is the peso, just as a transactions elsewhere in the Philippines, whether in Aparri or in the far south Jolo, would require the use of the same medium of exchange.

Within a country, all prices are quoted in a simple unit of account, and there is therefore, only one currency by which all debts quoted in this unit are settled.

In International trade, however, the existence of independent currency systems as well as banking institutions has to be reckoned with.

Thus, when we import goods from the United States, we have to pay the exporter in terms of his own currency which, in this case, is the American Dollar.

The same true with respect to all other transactions with other foreign currencies.

As each nation has its own national currency, the task of remitting payment from one country to another is quite difficult.

Oftentimes payments are made in terms of US Dollar because of its convertibility into all other currencies.

Hence, it commands international
acceptance.

Variations in foreign exchange rates between different countries exert a profound influence upon the currents of trade.

2. Tariffs and Other Trade Restrictions.

The existence of tariffs constitutes another difference between domestic trade and international trade.

In ancient and medieval times, it was observed that tariffs were primarily levied for purposes of revenue needed by the government.

However, within recent times, governments have used tariffs as instruments of national commercial policy, that is, for the purpose of regulating the flow of imported, merchandise into their countries so as to protect domestic industries.

It is likewise important to observe that, in may instances, tariffs are complemented by import quotas, export quotas, exchange controls and other governmental prohibitions affecting imports and exports of certain types of commodities.

3. Movement of Labor and Capital.

Within a country, labor and capital are relatively mobile.

In the particular case of labor, it is customary to observe that young people generally move from regions of least labor opportunities to regions of ample labor opportunities.

According to the latest analysis of migration streams conduction by UP Population Institute, land hunger, population pressure and industrial growth are driving more families to shift from one region to another.

Same observation may be noted with respect to the movement of capital.

Because a number of countries, at times, impose foreign exchange restrictions, such as regulations inhibit the flow of funds from one country to another.

Moreover, capital will flow out from a country and become invested abroad only if attracted by higher interest rates aside from other conditions favorable to the entry of foreign investments.

4. Nature of Market.

Differences in the habits and tastes of the people, in their languages and business customs, make the carrying of foreign trade a more complicated pursuit than domestic trade.

One need not dig deeply into the intricacies of specialization habits, style causation and consumption preferences in order to realize the fundamental fact that goods for export must be so designed as to conform with the national characteristics of those countries to which they are destined.