WAEC Commerce 2022 Theory — Question 6

Model answer

(a) International trade: Documentary collection (an important bank payment method under which the sale transaction is settled by the bank through an exchange of documents); Letter of credit (a promise by a bank to pay an exporter once all terms of the contract are executed properly); Open account terms (a sale in which goods are shipped and delivered before payment is due, usually within 30, 60, or 90 days). Home trade: Money order (a way of giving a bank instruction to pay a specified person at a particular period of time); Cash (the act of paying for goods or services by exchanging cash with the seller/provider of the service). (b) Production: it is not possible for every country to produce equally at a cheap cost, which is why international trade is necessary. Factors of production: labour, capital and raw material for producing goods are available at different rates in different countries. Cost of production: each country finds it advantageous to produce only those goods/services it can produce efficiently, leaving other activities to other countries at lower cost. Resource distribution: companies often face problems due to the limitation of natural resources, as there is an unequal distribution of resources among countries. Government policy: at times, government policy can also encourage international trade.