International trade refers to the selling and purchasing of goods across boarders i.e. betweendifferent countries. International trade allows for expansion of local markets into the worldfrontier due to the possibility of currency conversion in the foreign exchange markets. This kindof a market gives birth to what is generally; the forces of demand and supply influence therunning of the market.
How is it different from domestic trade?
First, this sort of trade allows for movement of goods and services across boarders unlike in thedomestic markets. International trade is what give rise to the import and export business in theworld. Second, more than one currency is used and as such currency conversion mechanismshave to be in place to execute this kind of trade.
Why participate in international trade?
International trade exposes consumers and users to various types of goods and services thatvary in terms of prices, quality and quantity measure. In the current economy, almost everysingle type of available commodity can be found no equal measures in most countries thusallowing consumers to choose in terms of the tastes and preferences without any restrictions.There are several theories in place to discuss international trade.
Purchasing power parity (PPP)
This is a theory in international trade that articulate that one should be able to purchase thesame basket of goods with his or her money in different countries given that the exchange rateregime in place is thereby floating one. As a consequence, international trade has guidelines onhow it should be carried out.
Law of one price
The law states that one should be able to purchase commodities at the same price at thepreparing exchange rates. As such given the quality of goods produced in two differentcountries to be the same, one would not prefer wither over the other since the quality andprices are the same.