Difference between Internal Trade and External Trade

Trade is referred to as an economic concept that is involved with buying and selling of goods. Trade is conducted between two or more parties which can be an individual or a business entity.

Trade can be of two types : 1) Internal Trade and 2) External Trade

Internal trade is the trade that is conducted between parties within the political and geographical boundaries of a nation, while external trade is the trade that is conducted between two parties that are outside the nation’s borders or between two countries.

Let us look at some of the points of difference between internal and external trade.

Internal Trade

External Trade

Definition

Internal trade is trade that involves buying and selling taking place between two parties which are located within the political and geographical boundaries of a country

External trade is referred to as a trade that involves buying and selling of goods between two parties located in different countries or between two different countries

Countries Involved

Internal trade takes place between the country borders, therefore only one country is involved

External trade involves the transactions between two or more countries.

Currency involved

Domestic currency will be used as the medium of payment for all the transactions

Payments for external trade transactions are received in a currency that is mutually agreed by the two parties involved in the trade

Risk Involved

Internal trade has less risk as compared to external trade

External trade will be having more risk which can be due to currency fluctuations, economic state of countries, etc

Impact on Foreign Reserve

No impact on foreign reserve as transactions take place within the country

Foreign trade helps in adding to the foreign reserve of the country

Restrictions

Internal trade has less restrictions

External trade is subjected to many restrictions as it is between two countries, which involve different laws

This article was all about the topic of Difference between Internal Trade and External Trade, which is an important topic for Commerce students. For more such interesting articles, stay tuned to BYJU’S.

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