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) 2016
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..
6. Information Gap: It
is difficult to obtain accurate information about foreign markets and about the
financial position of foreign merchants.
Q.9. What are the
need/benefits of international business to nations? 2017, 2019
Ans:
The benefits of international business to nations are:
a)
Optimum utilisation of resources of the
country
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.10. How is
international business beneficial for firms?
Ans: International business
is beneficial for firms in the following ways:
a)
Prospects of higher profits due to large scale
production and sale.
b)
Increased capacity utilisation due to large
scale production
c)
Prospects for growth since business operates
in more than one country
d)
Facing less competition in domestic market by
exporting goods to different countries.
e)
Improved business vision.
Q.10. Differentiate
between domestic business and international business. 2018
|
DIFFERENCE |
DOMESTIC BUSINESS |
INTERNATIONAL BUSINESS |
|
NATIONALITY |
Employees, suppliers, middleman, shareholders and partners are
usually citizens of the same country. |
Employees, suppliers, middleman, shareholders and partners are
from different nations. |
|
MOBILITY |
Mobility of factors of production is more within a country. |
Mobility of factors of production is relatively less. |
|
RISKS |
It is subject to political system and risks of a single country. |
It is subject to political system and risks of different
countries. |
|
BUSINESS POLICIES |
Business practices, taxation system and policies of a single
country are applicable. |
Business practices, taxation system and policies vary
considerably across countries. |
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. 2016,
2018
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. 2017
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
|
S.no |
Documents Related to Goods |
Documents Related to shipment |
Documents related to Payment |
|
1 |
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. |
|
2 |
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. |
|
3 |
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. |
|
4 |
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. |
|
|
5 |
|
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. |
|
|
6 |
|
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.