Letters of CreditLetters of credit (LCs) are one of the most secure instruments available to international traders. An LC is a commitment by a bank on behalf of the buyer that payment will be made to the exporter, provided that the terms and conditions stated in the LC have been met, as verified through the presentation of all required documents. The buyer establishes credit and pays his or her bank to render this service. An LC is useful when reliable credit information about a foreign buyer is difficult to obtain, but the exporter is satisfied with the creditworthiness of the buyer’s foreign bank. An LC also protects the buyer since no payment obligation arises until the goods have been shipped as promised.Documentary CollectionsA documentary collection (D/C) is a transaction whereby the exporter entrusts the collection of the payment for a sale to its bank (remitting bank), which sends the documents that its buyer needs to the importer’s bank (collecting bank), with instructions to release the documents to the buyer for payment. Funds are received from the importer and remitted to the exporter through the banks involved in the collection in exchange for those documents. D/Cs involve using a draft that requires the importer to pay the face amount either at sight (document against payment) or on a specified date (document against acceptance). The collection letter gives instructions that specify the documents required for the transfer of title to the goods. Although banks do act as facilitators for their clients, D/Cs offer no verification process and limited recourse in the event of non-payment. D/Cs are generally less expensive than LCs.Open AccountAn open account transaction is a sale where the goods are shipped and delivered before payment is due, which in international sales is typically in 30, 60 or 90 days. Obviously, this is one of the most advantageous options to the importer in terms of cash flow and cost, but it is consequently one of the highest risk options for an exporter. Because of intense competition in export markets, foreign buyers often press exporters for open account terms since the extension of credit by the seller to the buyer is more common abroad. Therefore, exporters who are reluctant to extend credit may lose a sale to their competitors. Exporters can offer competitive open account terms while substantially mitigating the risk of non-payment by using one or more of the appropriate trade finance techniques covered later in this Guide. When offering open account terms, the exporter can seek extra protection using export credit insurance.ConsignmentConsignment in international trade is a variation of open account in which payment is sent to the exporter only after the goods have been sold by the foreign distributor to the end customer. An international consignment transaction is based on a contractual arrangement in which the foreign distributor receives, manages, and sells the goods for the exporter who retains title to the goods until they are sold. Clearly, exporting on consignment is very risky as the exporter is not guaranteed any payment and its goods are in a foreign country in the hands of an independent distributor or agent. Consignment helps exporters become more competitive on the basis of better availability and faster delivery of goods. Selling on consignment can also help exporters reduce the direct costs of storing and managing inventory. The key to success in exporting on consignment is to partner with a reputable and trustworthy foreign distributor or a third-party logistics provider. Appropriate insurance should be in place to cover consigned goods in transit or in possession of a foreign distributor as well as to mitigate the risk of non-payment.Before discussing the importance of trade more widely, we divide the countries into two categories Developed and Developing countries, and will discuss the importance of trade in this chapter keeping in view both categories. Most nations of the world are classified as less developed countries. In relation to developed countries, developing nations are characterized in general by low average real per capita income, High rate of illiteracy, high rates of population growth and the low rate of growth in average real per capita income. There is no sharp difference between developed and developing nations but a fair distribution of resources from the very rich to the very poor. In the past, the economic relationship between the developed and developing nations was characterized by developing nations exporting primarily food and raw material for manufactured goods from developed nations. This is still the case for the poorest nations. Although the level and rate of economic development depends upon internal conditions in developing nations yet most of the economists believe that international trade can also contribute to the development process. Some economists, however, notably Prebisch, Singer and Myrdal believed that the international trade and the functioning of the international economic system benefited developed nations at the expense of developing nations. International trade has flourished over the years due to the different benefits which it has offered many countries across the world . It is one of the important source of revenue especially for a developing country. And now the rise in the International trade is essential for the growth of globalization. and any kind of restriction to International trade would limit the nations to the services and goods produced within its territories and they would lose out on the valuable revenue from the global trade revenue from the global trade. that’s why nations with strong International trade have become prosperous and have the power to control the world economy. A country should be economically stable rather than only being a nuclear power, because today nations are not destroying their enemy countries by military attack but attacking on their economic goals. Developing countries can only make themselves developed countries by improving their trade, and by exporting high quality products a country not only can attract buyers but also make a good repute around the world. It is only possible through international trade. Although trade is essential for developed countries but it is very important for the progress of developing countries. now the question arise here how and why ? For this purpose I would like to discuss some important points in this regard.Firstly, International trade is one of the most central element in the economic growth of a developing country , it benefits them by increasing their access to economic resources . Secondly, new trade relations can help developing countries induce extra energy and confidence into the financial markets, and export economic growth and opportunity, so we can say that they are increasing their revenue of or access to economic resources. economic resources include land, labor and capital . land in every country represent the resources found within that country. Thirdly , they can improve their quality of life , nations can import goods that are not readily available within their borders. Important goods may be cheaper for a developing country than attempting to produce consumer goods within their borders. Developing countries with the help of friendly neighbors may also be able to import goods more often. Fourthly, the developing countries after participating in the trading system and global economy open opportunities for the people of their countries, and the new global trade negotiation would be helped by the new WTO Global Trading system, which puts the developing nations parallel to the developed countries. So we can say that with these open market policies the consumers have more and better options to choose from. There is no country in the world which produces all the commodities it needs. So for a good repute, it is better for a developing country that it should produce those commodities in which it has comparative advantage, and after exchange of those commodities with the commodities produced by other countries relatively more efficiently. Comparative difference in factor funding, technology, tastes etc, among the nations of the world have greatly widen the basis of the international trade.International trade can play a vital role for better foreign relations. Developing nations are mostly subject to international threats. So having trade relations with more powerful countries can help insure the developing nation to have additional protection from international threats. They can use free trade agreements to improve their military strength and internal infrastructure. For this purpose, developing countries should learn how they can govern their economy and what types of government policies can best benefit their people. Another important benefit of trade for developing countries is that they can control poverty . they can create new job opportunities for local workers, and increased level of employment automatically lead to a higher standard of living. they can purchase or to invest in equipment and pay higher wages to adult workers, so they can control child labor in country and with higher family incomes, the children would be able to attend schools or participate in healthy activities rather than work. Most of the people can’t afford medical facilities and their children died due to the lack of medical facilities, sometimes they commit crime to save their families, If developing countries control child labor it alleviates crime and lack of medical care, and the ultimate result is reduction in infant deaths .Poverty is the most crucial plague of our times. A dramatic increase in developing country’s participation in trade has coincided with an equally sharp decline in extreme poverty worldwide. Poverty in many parts of the world. Especially in Africa, where the challenge of ending extreme poverty is greatest strikingly rural phenomena. Trade and internal market barriers in agriculture present real challenges to the people of rural areas. More than half of the extreme poor live in fragile and conflict affected areas and are less likely to be able to benefit from trade opportunities, even though export diversification by providing alternative livelihoods can be an essential path. Trade can also provide jobs and empowerment to women to face specific constraints which can improve their standard of life. International trade will continue to be the engine that runs most nations.The modern economic trends are also revealing that international trade is helping the growth of Developing countries, and has helped them immensely in their rapid economic growth. Many countries enjoyed that rapid growth by turning down trade barriers and accepting the new technological developments. The open markets also provide access to some of the best technologies, which allow countries to focus on certain industries, rather than producing all their own . one of the main reasons behind the fall of Soviet Union was the failure to adopt advanced technology, in order to compete with the other world class producers. There is a believe that trade is an important aspect to support development and poverty reduction. Trade capacity building include a wide variety of activities , but essentially involves developed countries sharing technical knowledge on policy development, building functioning and efficient institutions, harmonizing standards, reducing barriers to entry, and creating an attractive investment climate to attract businesses. Trade openness itself and lowering trade costs is essential for delivering gains to the poor. A range of complementary policies helps to maximize the gains of openness for the poor including policies related to human and physical capital , access to finance, governance and institutions and macroeconomic stability. Strengthening of enabling environment can be done through innovative policy frameworks that improve consultation with the poor, and target their needs more carefully . To achieve this will require deeper cooperation across sectors, better coordination across government ministries and agencies and that a wider range of stake holders work effectively together.Keeping all these points in view, imagine about a country that decides to isolate itself economically from the rest of the world. In order to survive, the citizens of this country would need to grow their own food, make their own clothes and build their own houses. However, if this country decides to open its border to trade, its citizens would specialize in the activities they do best. Specialization leads to higher productivity, higher income and better living standard. We use the term comparative advantage in foreign trade which means there is a place under the free trade sun for every nation, no matter how poor, because people of every nation can produce some products relatively more in yield than they produce other products. The benefit of comparative advantage are particularly important to developing nations. The relationship between trade openness and economic growth has been thoroughly analyzed and it shows the nation that greater openness to trade generates positive growth effects. In conclusion, a country gains from international trade regardless of whether it is big or small. Every country will benefit from trade because every nation can produce some products relatively more efficiently than they produce other products and this is especially true for developing countries. We will use the example of Pakistan as a developing country and united kingdom as a developed country and a comparison between them will be discussed.