Chapter 10: Foreign Trade of India Q.7. Answer in detail: 1. Explain the meaning and role of foreign trade

Balbharati solutions for Economics HSC 12th Standard Maharashtra State Board 

 

Chapter 10: Foreign Trade of India

Q.7. Answer in detail:

1. Explain the meaning and role of foreign trade.

Meaning of Foreign Trade:

Foreign Trade is traded between the different countries of the world. It is called International Trade or External Trade.

Role of foreign trade can be justified on the basis of the following points:

To earn foreign exchange: Foreign trade provides foreign exchange which can be used for very productive purposes. Foreign trade is a remarkable factor in expanding the market and encouraging the production of goods.

Encourages Investment: Foreign trade creates an opportunity for the producers to reach beyond the domestic markets. It encourages them to produce more goods for export. This leads to an increase in total investment in an economy.

Division of labour and specialization: Foreign trade leads to the division of labour and specialization at the world level. Some countries have abundant natural resources, they should export raw material and import finished goods from countries which are advanced in skilled manpower. Thus, foreign trade gives benefits to all countries thereby leading to the division of labour and specialization.

Optimum allocation and utilization of resources: Due to specialization, resources are channelized for the production of only those goods which would give the highest returns. Thus, there is rational allocation and specialization of resources at the international level due to foreign trade.

Stability in price level: Foreign trade helps to keep the demand and supply position stable which in turn stabilizes the price level in the economy.