Trade and Auxiliaries to Trade

Commerce is a broad term that includes all activities necessary for the sale, transfer, and exchange of goods and services.

• It acts as a link between producers and consumers by ensuring the smooth distribution of goods and services.
• It removes various obstacles in the exchange process.

It consists of two main parts:

1. Trade

Trade is the buying and selling of goods and services with the main objective of earning a profit. It connects producers with consumers, ensuring that goods reach the right place at the right time and helping satisfy people's needs. It helps move goods from producers to wholesalers, retailers, and finally to consumers through different channels of distribution.

Example: A wholesaler buys rice from farmers and sells it to retailers.

Classification of Trade

a) Internal Trade

It is concerned with buying and selling of goods and services within the geographical boundaries of a nation. It is also known as Home trade or domestic trade. Here, both buyers and sellers belong to the same country. 

Types of internal trade:

i) Wholesale Trade:

• Purchases goods in large quantities from manufacturers.
• Sells goods to retailers.
• Provides storage and transportation.

ii) Retail Trade:

• Purchases goods from wholesalers or manufacturers.
• Sells goods directly to final consumers.
• Deals in small quantities.

b) External Trade

It consists of the exchange of goods and services between persons or organisations operating in two or more countries. It is also known as foreign trade or international trade.

Types of external trade

i) Import trade: When goods are purchased from another country, it is known as import trade.

For example, India imports crude oil from the Middle-east countries.

ii) Export Trade: When goods are sold to other country, it is known as export trade.

For example, India exports cereals, spices and other products to USA.

iii) Entrepot trade: When goods are imported from a country for purpose of exporting it to another country, it is known as entrepot.

For example, India imports many commodities from European countries to export them to Nepal.

2. Auxiliaries to Trade

Activities which are made for assisting trade by removing obstacles in the movement of goods and services. They help businesses carry out trade smoothly and efficiently by providing essential services such as transport, banking, insurance, warehousing, communication, and advertising. These services ensure that goods reach consumers safely, on time, and with minimum risk.

Types of Auxiliaries to Trade

1. Transport:

• It means the movement of goods and people from one place to another.
• It removes the obstacle of place by making goods available where they are needed.
• The main modes of transport are road, rail, water, air, and pipelines.

2. Banking and Finance:

• It provide the funds required for carrying out business activities.
• Banks provide financial facilities such as loans, overdrafts, cash credit, and advances.
• Banks also offer services like accepting deposits, collecting cheques, issuing bank drafts, and discounting bills.
• In foreign trade, banks help exporters receive payments from importers.
• They also assist businesses in raising capital and ensure smooth financial transactions.

3. Insurance:

• It protects businesses from various types of risks and uncertainties.
• It covers risks such as fire, theft, burglary, accidents, natural disasters, and occupational hazards. .
• Insurance provides financial security and helps businesses continue their operations with confidence.

4. Warehousing:

• It is the process of storing goods until they are needed in the market.
• It removes the obstacle of time by ensuring goods are available when required.
• Warehousing ensures the smooth flow of goods throughout the year.

5. Advertising:

• It involves activities that provide information about products and services to consumers.
• It helps in promoting sales, especially of consumer goods.
• Manufacturers and traders use advertising because they cannot reach every customer personally.

6. Communication:

• It is the exchange of information between buyers, sellers, producers, and consumers.
• It helps in placing orders, making payments, and coordinating business activities.
• Efficient communication ensures smooth and effective business operations.