Foreign trade or international trade or external trade is as old as human civilisation. Even in ancient times when there were few means of transport, merchants from one country used to ex­change goods with those from other countries.

However, such trade was carried on a small scale. After the Industrial Revolution foreign trade became organised on a large scale due to modern means of transportation and communication.

Foreign trade is based on the theory of comparative costs. According to this theory every country should try to produce goods which it can purchase at a cost lower than other nations and should exchange supplies of such goods for goods which other countries can produce at a lower cost.