Forex: World Trade in Foreign Exchange

The end purpose of trade is to get goods into the hands of the people who finally use them --- the consumers. This was simple in the early days when people went to the market place and bought directly from a farmer or a craftsman. Today, the consumer and producer rarely meet. Farm products and raw materials are shipped from one part of the country to another to be processed or manufactured. They pass through many hands before reaching retail stores.

The people who guide the movement of goods are retailers, wholesalers (middlemen), and other marketing specialists. They do not themselves produce goods, but they are essential in the complex system of mass distribution. In addition to buying and selling, they are concerned with sales management, advertising, storage, and transportation. They also deal in standardizing and grading, packaging, financing, accounting, and market research.

The importance of trade to the modern world can be shown through an example: suppose you buy a pound of sugar, from a grocery store. Actually the sugar came from a cane farmer in Cuba. He sold it to a refinery, where the sugar was processed. From the refinery, it was shipped to the United States, and then probably traveled by rail to a wholesaler. From there the sugar was sent to your grocery store, either by rail, or by truck. International or world trade often aids all countries that take part.

For example, a nation with poor and costly raw materials benefits if it can obtain them abroad from countries where they are relatively abundant. In the case of manufactured goods, it often happens that a country's own national market is too limited. Access to foreign markets then enables its manufacturing industries to flourish.

Nations may regulate trade through international commodity agreement. These agreements seek to stabilize the prices of some of the heavily traded raw materials and foodstuffs which tend to be overproduced. Such commodities include wheat, coffee, sugar, and tin.

However, such arrangements generally fail to reduce supply or to encourage expanded consumption. Many countries also sign reciprocal trade treaties. These mutually favorable agreements often include lowered or discontinued customs duties. Nations have also joined together to form customs unions. They attempt to eliminate trade restrictions among themselves and to follow a common tariff policy toward all other nations in the world.

Individual businesses engaged in international trade may form a cartel, or international monopoly. The firms gain complete control over a product, and then regulate the production, price, trade, and consumption of that product throughout the world.

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