Let's Learn About Trade:

Let's Learn About Trade:

Have you ever considered whether the items you use come from your own country or elsewhere?

If something is produced in your country, you have good reason to feel proud. However, if it comes from another country, your next thought might be: how did it get here? The most likely answer is through airways, waterways, or roadways. If your country is landlocked and shares borders with another nation with whom you have good relations, then trade between your countries becomes a significant possibility.

Any thing You Buy or Sell is a Trade

Essentially, anything you buy or sell is a 'trade'. Furthermore, buying and selling goods across different geographical locations also constitutes 'trade'. Now, you might wonder if this applies to everything, even currencies. Indeed, at its core, all commerce is a form of barter. In the past, if I had wheat and you had sugar, we might exchange them directly – my wheat for your sugar. This principle applies to any product. If you have an excess of something you don't need, you might sell it to someone who does. Conversely, if someone else has something you need, you might buy it from them. Today, when you buy something with money, it's still a type of barter, but instead of directly exchanging goods, you use money as a medium of exchange, and products have assigned prices. Of course, you might also receive discounts or gifts from loved ones, for which you don't pay and are given with affection.

Exchange of Contracts, Agreements on Goods, Services.

Let's consider an example: imagine you are selling rice to me, and I want to pay in dollars. You will set a price for the rice. Now, if many other sellers like you are offering the same type and quality of rice, you might offer me a discount to encourage my purchase, given the ample supply. However, if you are the only one selling this particular rice, and it's not easily available elsewhere, perhaps due to the difficulty or cost of reaching other sources, you might not offer a discount and could even increase the price. (I hope you agree with this logic.) This example illustrates a simple scenario with one product, rice. Imagine the vast array of products that are constantly being produced and manufactured in various locations. These include commodities like metals, sugar, cement, steel, gold, silver, platinum, building materials, various consumer goods, electronics, airplanes, ships, and even warplanes – the list is virtually endless. To categorize these products at an international level, we use product codes such as the Global Trade Item Number (GTIN), Universal Product Codes (UPC), International Standard Book Number (ISBN), HS codes (primarily used for classifying products for export/import), European Article Number (EAN), and model numbers.

When goods are produced and transported within the same country, it's called domestic trade. When production and transportation occur across national borders, it's international trade. Regardless of whether it's domestic or international, trade doesn't operate solely on trust, especially when companies A and B are engaging in business for the first time. For example, if Company A wants to purchase goods from Company B within the country, both parties need to agree on several terms: when the goods will be produced and ready, how they will be transported, who will cover the logistics costs, the price of the goods, who will pay for loading and unloading, a detailed description of the goods, the required quality standards, how the goods will be packaged, the terms for accepting late deliveries, the mode of transport (truck, car, bike, or train), whether any advance payment is required, the payment terms, the timeframe for Company B to receive payment from Company A after invoicing, the terms for returns (if any), and how return costs will be shared or who will bear them.

Exchange of Currencies

Previously, I discussed currency exchange. To clarify, any currency trade fundamentally involves buying one currency by exchanging another that you currently hold or wish to sell is nothing but exchange of currencies.

Consider the U.S. Dollar (USD). It often holds a higher value compared to other currencies, granting it certain advantages. This is largely due to the United States being a developed nation. Consequently, the USD frequently serves as a base currency in international trade. While transactions certainly occur in other currencies based on agreements between buyers and sellers, the USD remains the most widely accepted global currency. This acceptance provides the U.S. with a competitive edge in international commerce.

Updated 17 May 2025

Cost effective solutions & creating win win situations 

This inherent advantage also creates opportunities for other nations. For instance, if a U.S.-based company requires a service and would typically pay USD 1000 for two hours domestically, the widespread desire among U.S. companies for cost-effective solutions across various sectors (IT, AI, manufacturing, consulting, healthcare, insurance, etc.) drives them to seek more affordable alternatives. Emerging economies like India, China, Sri Lanka, and other developing nations can offer comparable services at a lower cost. U.S companies can hire more employees and can get more service in USD 1000. This allows U.S. companies to reduce expenses and potentially increase revenue, while simultaneously generating employment opportunities in the countries providing these services, fostering a mutually beneficial scenario and a win win situations.

Invoicing in Trade Finance

In our earlier discussions, we explored the roles of buyers and sellers in trade finance, whether in domestic or international trade transactions. When a seller provides goods or services, they issue an invoice to the buyer. In trade finance terminology, the seller may be referred to as the Drawer or Beneficiary, and the buyer as the Drawee or Applicant. However, for the sake of simplicity, we’ll use the more familiar terms “buyer” and “seller” throughout our discussions. Depending on the specific product or method of payment being discussed, we may refer to the appropriate trade finance terms when necessary.

The invoice raised by the seller typically includes payment terms, which could require immediate payment or specify a due date in 30, 45, 60, 90, 120, 150, 180, or even 365 days. These terms are entirely dependent on the agreement between the buyer and seller.

An invoice generally outlines:

• The goods and/or services provided

• The price of each item or service

• Additional details such as description, model numbers, product codes, or any included spare parts

• Installation details or associated installation costs, if applicable

• Full names and addresses of both the buyer and seller

• Invoice number and issue date

• Delivery or shipping address

• Quantity and unit details (if applicable)

• Item codes, customer references, or barcodes

• Country of origin of the goods (this may or may not be mentioned)

• Company name and branding such as logos (optional)

• Signature (optional; may vary depending on business practices)

• Tax information such as tax numbers and tax amounts, based on the rules of the exporting or transporting country

• The format may be computer-generated or manually created

In essence, the structure and content of an invoice can vary widely based on the nature of the transaction, the jurisdictions involved, and the mutual agreements between the trading parties.

Happy reading... more to continue