Saturday, December 10, 2016

Business Studies - Class 11: International Trade

Unit – XI: International Trade (Part I and Part II)
Q.1. Define international business.
Ans: The international movement of goods, services, capital, personnel, technology and intellectual property in different countries is called international business.
Q.2. What is a joint venture?
Ans: A joint venture means any form of association that is jointly owned by two or more independent firms.
Q.3. What is the need for international business?
Ans: Due to unequal distribution of natural resources among countries, they cannot produce equally and cheaply all that they need.
Q.4. What do you mean by EXIM Policy and who regulates it?
Ans: EXIM Policy means export and import policy and it is regulated by the Central Government.
Q.5. What is entrepot trade?
Ans: When goods are imported with a view to re-export them, it is known as entrepot trade.
Q.6. What are the limitations of exporting and importing?
Ans: The limitations of exporting and importing are as follows:
a)      Involves huge cost of packaging, insurance and transportation;
b)      Custom clearance of goods is difficult;
c)       The government policy of some countries may not be favorable to export and import.
Q.7. What are the features of international business?
Ans:  The important features of international business are as follows:

a)      Facilitates import and export of goods.
b)      Involvement of two or more countries.
c)       Dealing in foreign currency.
d)      Subject to restrictions as per the policies of a country.
e)      Due to the distance involved, it is a lengthy procedure.
Q.8. What are the various problems of International business? (Mention Points only)
Ans: Problems of International business: The major problems faced are as follows:
1. Different currencies: Every country has its own currency. So importer has to make payment in the currency of exporter’s country.
2. Legal Formalities: International business is subject to a large number of legal formalities and restrictions.
3. Distance Barriers: Due to large distance between countries, it is difficult to establish quick and personal contacts between traders from different countries.
4. Language Barrier: Due to different languages in different countries, it becomes difficult for traders to understand the terms and conditions of the contract.
5. Difference in Laws: International business transactions are subject to laws, rule and regulations of multiple countries. International business transactions are subject to laws, rule and regulations of multiple countries.
6. Information Gap: It is difficult to obtain accurate information about foreign markets and about the financial position of foreign merchants.
Q.9. How is international business beneficial for firms?
Ans:  International business is beneficial for firms in the following ways:
a)      Prospects of higher profits
b)      Increased capacity utilisation
c)       Prospects for growth
d)      Facing less competition in domestic market by exporting.
e)      Improved business vision.
 Q.10. Differentiate between domestic business and international business.

Employees, suppliers, middleman, shareholders and partners are usually citizens of the same country.
Employees, suppliers, middleman, shareholders and partners are from different nations.
Mobility of factors of production is more within a country.
Mobility of factors of production is relatively less.
It is subject to political system and risks of a single country.
It is subject to political system and risks of different countries.
Business practices, taxation system and policies of a single country are applicable.
Business practices, taxation system and policies vary considerably across countries.
 Q.11. What are the benefits of international business to nations?
Ans:    The benefits of international business to nations are:
a)      Optimum use of resources
b)      Growth of economy
c)       Economies of large scale
d)      Increased employment opportunities
e)      Stabilisation of prices
f)       Increase in standard of living
g)      Enhancement of competition
h)      Global understanding
i)        Opportunity to import the essential goods.
Q.12. How is Bill of Lading different from Bill of Entry?
Ans: Bill of lading differs from Bill of entry in following respects:
1)      Bill of lading is a document related to export transaction while bill of entry is a document related to import transaction.
2)      Bill of lading is a receipt given by the shipping company to the exporter for carrying the goods to the importer.
3)      Bill of entry is a form supplied by the customs office to the importer for assessment of customs duties.
Q.13. Briefly explain letter of credit.
Ans: A letter of credit is a proof of the credit worthiness of the importer. The letter of credit is an assurance that bill will be paid by the bank. This method is favored by the exporter as it ensures a quick and guaranteed payment from the importer.
 Q.14. What do you mean by Export Processing Zone?

Ans: An Export Processing Zone (EPZ) is an industrial estate usually situated near an international port and/or airport with a view to encourage units meant for production or processing of export items. The entire production of units is exported. The procedure is very simple and speedy. It emphasises on processing and value addition
 Q.15. Define Special Economic Zones.
Ans: Special Economic Zones are specifically duty free enclaves and shall be deemed to be foreign territory for the purposes of trade operations, duties and tariffs. They are set up to encourage free trade for the purpose of promotion of exports.
Q.16. Name the organisations that have been set up in the country by the government for promoting country’s foreign trade.
Ans: Various organisations have been set up in the country by the government for promoting country’s foreign trade. They are:
1)      Department of Commerce;
2)      Export Promotion Councils;
3)      Export Inspection Councils;
4)      Indian Trade Promotion Organisation;
5)      Indian Institute of Foreign Trade;
6)      Indian Institute of Packaging;
7)      State Trading Organisation.
Q.17. What is ‘Bill of Lading’? Mention its contents. State its features.
Ans: When goods are sent by ship, shipping company issues a document named as bill of lading. Bill of lading may be defined as a receipt given by the shipping company to the exporter for carrying the goods to the importer. When goods reach the destination, the importer gets them from the shipping company in return of bill of lading.
Bill of lading contains the following information:
a)      Name of exporter;
b)      Name of importer;
c)       Name of notifying party;
d)      Identification marks on packages;
e)      Description of goods including number of packages, goods weight and volume.
f)       Freight charges;
g)      Name of the ship;
h)      Port of shipment;
i)        Port of destination;
j)        Date of shipment.
Features of bill of lading are:
a)      Receipt of goods: Bill of lading implies that goods have been received by the shipping company.
b)      Document to title of goods: Bill of lading serves as a document of title to the goods. A bonafide holder of bill of lading has the title to the goods.
c)       Contract of affreightment: Bill of lading is an evidence of the contract between the shipper and the shipping company to carry the goods in consideration of freight.
Q.18. Mention the steps that need to be followed in import trade.                         2006
Ans: The steps that need to be followed in import trade are:
1)      Trade Enquiry
2)      Procurement of Import License
3)      Obtaining Foreign Exchange
4)      Placing order or Indent
5)      Obtaining Letter of Credit
6)      Arranging for Finance
7)      Receipt of shipment Advice
8)      Retirement of Import Documents
9)      Arrival of Goods
10)   Customs clearance and Release of goods
Q.19. Mention the steps that need to be followed in export trade.                        
Ans: The steps that need to be followed in export trade are:
1)      Receipt of enquiry and sending quotation
2)      Obtaining an order or indent
3)      Getting letter of credit
4)      Obtaining export license
5)      Settlement of rate of exchange
6)      Production or procurement of goods
7)      Packing and marking
8)      Insurance of goods
9)      Arrangement for shipping the goods
10)   Customs formalities
11)   Mate’s receipt
12)   Preparation of commercial invoice
13)   Sending documents to the importer.
14)   Receiving payment from the importer.

Q.20. Why was WTO set up? Briefly explain its objectives and functions.
Ans: World Trade Organisation was set up on January 1, 1995 replacing GATT with the sole objective of solving trade problems between countries and providing a forum for multilateral trade negotiations. Following are its objectives:
a)      Raising standard of living;
b)      Employment generation;
c)       Optimal use of world resources;
d)      Sustainable development
e)      Ensuring that LDC (Least Developed Countries) secures a better share of growth in international trade.
The main functions of WTO are:
a)      WTO provides a forum for further negotiations for trade liberalization in the framework of the various agreements concluded.
b)      The countries might prevent imports even after they have negotiated their free entry. They may set arbitrary health or safety standards that favour their home country production. In such cases, WTO administers the dispute settlement procedure.
c)       WTO establishes and directs a trade policy review mechanism so as to examine the trade policies and practices of the member countries and to suggest measures of reform.
d)      WTO undertakes research and publishes information and studies for the international community.
e)      WTO cooperates on equal footing with the World Bank and the International Monetary Fund for the purpose of economic policy making.
Q.21. What was the need to establish IMF? State its main functions.
Ans: IMF was established on December 27, 1945, to institute an open and stable monetary system in the world. Its headquarters are in Washington DC. IMF is an autonomous body and had 191 member countries in 2005. The major idea underlying the setting up of the IMF is to evolve an orderly international monetary system, i.e. facilitating system of international payments and adjustments in exchange rates among national currencies.
Its main functions are:
a)      IMF acts as a short-term credit institution for the benefit of member countries.
b)      It keeps reserves of the currencies of all member countries.
c)       It lends to the borrowing countries the currencies which they require.
d)      It provides mechanism for the orderly adjustment of exchange rates, i.e. the rates at which different currencies could be purchased and sold.
e)      It provides machinery for international consultations.
Q.22. Name the documents used in import trade. Explain five of them.
Ans: Documents Used In Import Transactions:
1)      Trade Enquiry: It is a written request by the importer to the exporter to provide information regarding price, terms and conditions etc.
2)      Proforma Invoice:  A Proforma invoice is a document that contains detailed information regarding price, quality, grade, grade, size etc.
3)      Shipment Advice:  Shipment advice is a document that the exporter sends to the importer.  It informs that the shipment of goods has been made and details regarding it.
4)      Bill of Entry:  It is a document prepared by the importer. It shows the details of goods imported and is used by custom authorities for determining import duty.
5)      Sight Draft: It is a type of bill of exchange. Through this the exporter instructs the bank to hand over the relevant documents to the importer only against payment
6)      Usance Draft.
7)      Import General Manifest.
8)      Dock Challan.
Q.23. Name the documents used in export trade. Explain five of them.
Ans: Document Used in Export Transactions
Documents Related to Goods
Documents Related to shipment
Documents related to Payment
EXPORT INVOICE: It is issued by the exporter. It provides information like quantity of goods sent, total value of goods etc.
MATE’S RECIEPT: It is issued by the commanding officer of the ship to the exporter after the cargo is loaded on the ship.
LETTER OF CREDIT: It is guarantee issued by the importer’s Bank that it will honor payment up to a certain amount of export bill to the exporter.
PACKING LIST: It indicates the number of cases of packs and the details of the goods contained in these packs.
SHIPPING BILLS: It is the main document on the basis of which customs office grants permission for the export.
BILL OF EXCHHANGE: It is drawn by the exporter on the importer. It contains instruction to the importer to pay a specified amount to a certain person or the bearer of the instruments.
CERTIFICTE OF ORIGIN: It specifies the country in which the goods are being produced
BILL OF LADING: It is prepared by shipping company acknowledgement the receipt of goods on board the ship.
BANK CERTIFICATE OF PAYMENTS: It certifies that necessary documents relating to the particulars export have been presented to the importer for payments.
CERTIFICATE OF INSPECTION: It ensures that only good quality products are exported.
AIRWAY BILL: It is prepared by the airline company to acknowledgement the receipt goods on board its aircraft.


MARINE INSURANCE POLICY: It is an agreement to indemnify the insured against any loss caused due perils of the sea in consideration of payment called premium.


CART TICKET: It is prepared by the exporter, which provides details regarding export cargo, like shipper’s name, number of packages shipping bill number etc. It is also known as a cart chit, vehicle pass or gates pass.

Q.24. Mention five export promotion measures taken by govt. of India.                                               2006
Ans: Major trade promotion measures (especially those related to exports) are as follows:
a)      Duty drawback scheme: Since goods meant for exports are not consumed domestically, these are not subjected to payment of various excise and customs duties. Any such duties paid on export goods are, therefore, refunded to exporters on production of proof of exports of these goods to the concerned authorities.
b)      Export manufacturing under bond scheme: This facility entitles firms to produce goods without payment of excise and other duties.
c)       Exemption from payment of sales taxes: Goods meant for export purposes are not subject to sales tax. Even for a long time, income derived from export operations had been exempt from payment of income tax.
d)      Advance license scheme: It is a scheme under which an exporter is allowed duty free supply of domestic as well as imported inputs required for the manufacture of export goods.

e)      Export Promotion Capital Goods Scheme: The main objective of this scheme is to encourage the import of capital goods for export production. This scheme allows export firms to import capital goods at negligible or lower rates of customs duties subject to actual user condition and fulfillment of specified export obligations.