Incredible Reasons Why A Country Exchange Goods and Services With Others Countries

Currency

Hello guys, I know most of us are not aware of the reasons why countries exchange good and services with each other. This exchange of goods and services is what we refer to as trading. Exporting and importing of goods is very important and essential in a country, without trading a country cannot stand on its own and their economy won't even survive.

Trading also known as exchange of goods and services between countries plays a major role in a country economy.

Firstly we must know what foreign exchange really means before we can know the importance to the growth of the economy of a country. Foreign exchange is the tradingbof goods and services between two or more countries. Trading was invested a long time ago and it started with trade by barter that is, exchanging of goods without the use of money. But later when money was introduced, it promoted and simplified trading between individuals and foreign exchange.

Foreign exchange of goods also can serve as using what you want to get what you need. For instance a country is producing a particular goods or may be the goods or the commodity is very common and cheap in their society, but on the other hand in another country the commodity is very scarce and expensive,  the other country too will have a commodity that is very cheap and common, the two country will now come together and exchange the worth of the goods with each other and the equation becomes balanced.

Foreign exchange trading can be categorised into three major category namely ;

1. Export trading.

2. Import trading.

3. Entreport.

Let's quickly dish out the meaning of this types of foreign exchange that we listed above.

1. Export Trading

This simply means that when a country sell her goods and services out to another country is known as export. For instance a country sells her goods and her services to another country and collect money for sales.

2. Import trading

This simply means when a country purchased a goods and service from another country is known as import trading. For example Nigeria bought and import rice fr Cotonou.

3. Entrepot

This is special place located, like a port, a city where goods and services to be imported are exchanged or distributed.

Looking critically at the above highlighted categories of foreign exchange trading, by now you should have an idea of what foreign exchange is all about and how it can help a country to gorw faster.

There top incredible reasons why a country exchange good and services. Here am going to list 6 major reasons why country trade with other countries.

1. Division of labour

2. It reduced dependence on Local market in a country

3. Specialization of goods and services

4. Differences in Natural resources

5. Different country Policy

6. Differences in Demand and Supply

I am quite sure you will want to know more about the highlighted point I listed up there. If so continue reading below as I explain the point listed above.

1. Division of labour

When talking about foreign exchange, we can also say it's like a division of labour among countries. Its part of the point I explained earlier, for instance country A may be naturally endowed with natural resources like fuel and a country B is endowed with natural resources like gold. If country A is in need of gold, they can exchange fuel with gold with country B and everything will go smoothly as expected. This kind of process is like a division of labour among countries to move the countries forward. So that is one of the major reason why a country is involved in foreign exchange.

2. It reduced dependence on local market in a country

If a country rely sorely on her local market, then that country can collapse economically anytime because their will be a lot of pressure on the local market. But if a country go global, their are different values and culture, different want and need with different currency, such country will be able to make more money outside their local market and connect globally. This will move such country economy forward speedily and will also be able to connect with other culture and traditions.

3. Specialization of goods and services

Every country practising foreign exchange is specialized in one goods, services or the other. Just as have explained division of labour, each country is specialized on a particular goods mainly, to be exported to another country that is in need. And this allows peace to reign between countries. It will also allows the such country to make more sales on their specialized goods and services outside their country. For instance a country that is specialized in fish farming cant feed all her citizens with only fish and the said citizens can't even finish feeding on the fish produced in the country. They will have to be forced to sell it out to other country who is also in need of the product. So a country that is specialized in a goods will also be able to make more sales and also avoid wastage of that particular product.

4. Difference in Natural resources

Every Country in the whole world have their own natural resources. And these resources, citizens cannot make use of all the resources only, so part of it has to be exchanged with another and vice versa.

5. Different country policy

Countries around the world have their own policy and this made them to export some good that are not allowed in the country to another country where it is accepted.

6. Difference in demand and supply

Countries exchange goods and services due to different in demand and supply.  For instance, a country demand for food may be higher than that of other countries due to population, to balance the country hunger and thrust for this food, such country will need to import the food to feed her citizens. So differences in demand and supply makes most countries around to be involved in foreign exchange.

In conclusion, almost every country needs one thing or the other and tfor any country economy to grow, their must be foreign exchange trade.


Post a comment

0 Comments