1st PUC Business Studies Question Bank Chapter 12 International Business – II

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Karnataka 1st PUC Business Studies Question Bank Chapter 12 International Business – II

1st PUC Business Studies International Business – II Text Book Questions and Answers

Multiple Choice Questions

Question 1.
Which of the following documents are not required for obtaining an export license?
(a) IEC number
(b) Letter of credit
(c) Registration cum membership certificate
(d) Bank account number
Answer:
(b) Letter of credit

1st PUC Business Studies Question Bank Chapter 12 International Business - II

Question 2.
Which of the following documents is not required in connection with an import transaction?
(a) Bill of lading
(b) Shipping bill
(c) Certificate of origin
(d) Shipment advice
Answer:
(b) Shipping bill

Question 3.
Which of the following do not form part of duty drawback scheme?
(a) Refund of excise duties
(b) Refund of customs duties
(c) Refund of export duties
(d) Refund of income dock charges at the port of shipment
Answer:
(d) Refund of income dock charges at the port of shipment

Question 4.
Which one of the following is not a document related to fulfill the customs formalities
(a) Shipping bill
(b) Export licence
(c) Letter of insurance
(d) Proforma invoice
Answer:
(b) Export licence

Question 5.
Which one of the following is not a part of export documents?
(a) Commercial invoice
(b) Certificate of origin
(c) Bill of entry
(d) Mate’s receipt
Answer:
(c) Bill of entry

Question 6.
A receipt issued by the commanding officer of the ship when the cargo is loaded on the ship is known as
(a) Shipping receipt
(b) Mate receipt
(c) Cargo receipt
(d) Charter receipt
Answer:
(b) Mate receipt

Question 7.
Which of the following document is prepared by the exporter and includes details of the cargo in terms of the shippers name, the number of packages, the shipping bill, port of destination, name of the vehicle carrying the cargo?
(a) Shipping bill
(b) Packaging list
(c) Mate’s receipt
(d) Bill of exchange
Answer:
(a) Shipping bill

Question 8.
The document containing the guarantee of a bank to honour drafts drawn on it by an exporter is
(a) Letter of hypothecation
(b) Letter of credit
(c) Bill of lading
(d) Bill of exchange
Answer:
(b) Letter of credit

1st PUC Business Studies Question Bank Chapter 12 International Business - II

Question 9.
Which of the following does not belong to the World Bank group?
(a) IBRD
(b) IDA
(c) MIGA
(d) IMF
Answer:
(d) IMF

Question 10.
TRIP is one of the WTO agreements that deal with
(a) Trade in agriculture
(b) Trade in services
(c) Trade related investment measures
(d) None of these
Answer:
(d) None of these

Short Answer Question

Question 1.
Discuss the formalities involved in getting an export licence.
Answer:
Important formalities in getting an export license are as follows:

  1. Opening a bank account in any bank authorized by the Reserve Bank of India (RBI) and getting an account number.
  2.  Obtaining Import Export Code (EEC) number from the Directorate Genial Foreign Trade (DGFT) or Regional Import Export Licensing Authority.
  3. Registering with appropriate export promotion council.
    iv) Registering with Export Credit and Guarantee Corporation (ECGC) in order to safeguard against risks of non-payments.

Question 2.
Why is it necessary to get registered with an export promotion council?
Answer:
It is necessary for the exporter to become a member of the appropriate export promotion council and obtain a Registration Cum Membership Certificate (RCMC) for availing benefits available to export firms from the Government like duty exemptions, and these councils also provide incentives to the exporters.

Question 3.
What is IEC number?
Answer:
Import Export Code (IEC) number is given to an export firm by Director General for Foreign Trade (DGFT) which the firm needs to be filled in various export/import documents. For obtaining the IEC number, a firm has to apply to the DGFT with documents such as exporter/importer profile, bank receipt of the requisite fee, certificate from the banker on the prescribed form, two copies of photo graphs attested by the banker, details of the non-resident interet and declaration about the applicant’s non association with caution listed firms. –

Question 4.
What is pre-shipment finance?
Answer:
Pre-shipment finance is the finance that the exporter needs before shipment of the order for procuring raw materials and other components, processing and packaging of goods and transportation of goods to the port of shipment or we can say pre-shipment finance is the finance which is required to undertake export production.

Question 5.
Why is it necessary for an export firm to go in for pre-shipment inspection?
Answer:
An export firm has to go in for pre-shipment inspection as required by the Government of India to ensure that only good quality products are exported from the country. The government has passed Export Quality Control and Inspection Act, 1963 for this purpose of compulsory inspection of certain products by a competent agency as designated by the government.

If the product to be exported comes under such a category, the exporter needs to contact the Export Inspection Agency (EIA) or the other designated agency for obtaining inspection certificate. The pre-shipment inspection report is required to be submitted along with other export documents at the time of exports.

Such an inspection is not compulsory in case the goods are being exported by star trading houses, trading houses, export houses, industrial unit’s setup in Export processing Zones/ Special Economic Zones (EPZs/SEZs) and 100% Export Oriented Units (EOUs).

Question 6.
Discuss the procedure related to excise clearance of goods.
Answer:
The exporter has to apply, to the concerned Excise Commissioner in the region with an invoice because according to the Central Excise Tariff Act, excise duty is payable on the materials used in manufacturing goods. If the Excise Commissioner is satisfied, he may issue the excise clearance.

But in many case the government exempts payment of excise duty or later on refunds it if the goods so manufactured are meant for exports. This is done to provide an incentive to the exporters to export more and also to make the export products more competitive in the world markets.

1st PUC Business Studies Question Bank Chapter 12 International Business - II

Question 7.
Explain briefly the process of customs clearance of export goods.
Answer:
The goods must be cleared from the customs before these can be loaded on the ship. For obtaining customs clearance, the exporter prepares the shipping bill which contains particulars of the goods being exported, the name of the vessel, the port at which goods are to be discharged, country of final destination, exporter’s name and address, etc.

Five copies of the shipping bill along with the following documents are then submitted to the Customs Appraiser at the Customs House for clearance:

  • Export Contract or Export Order
  • Letter of Credit
  • Commercial Invoice
  • Certificate of Origin
  • Certificate of Inspection, where necessary
  • Marine Insurance Policy

After submission of these documents the superintendent of the concerned port trust is approached for carting order and after obtaining it, the Cargo is physically moved into the port area arid stored in shed.

Question 8.
What is bill of lading? How does it differ from bill of entry?
Answer:
Bill of lading is issued by the shipping company after the receipt of freight; it serves as evidence that the shipping company has accepted the goods for carrying to the designed destination. In case the goods are being sent by air, this document is referred to as airway bill. On the other hand “Bill of entry” is filled by the importer for assessment of customs import duty.

One appraiser examines the document carefully and gives the examination order. The importer procures the said document prepared by the appraiser and pays the duty, if any. After payment of the import duty, the bill of entry has to be presented to the dock superintendent. The examiner gives his report on the bill of entry which is then presented to the port authority which issues the release order after receiving necessary charges.

Question 9.
What is Shipping Bill?
Answer:
Shipping bill is the main document on the basis of which the customs office gives the permission for export. Shipping bill contains particulars of the goods being exported, the name of the vessel, the port at which goods are to be discharged, country of final destination, exporters name and address, etc. Exporter prepares the shipping bill for obtaining customs clearance. Thus, we can say shipping bill is the bill which is prepared by exporter and required for the customs clearance.

Question 10.
Explain the meaning of mate’s receipt.
Answer:
A mate receipt is a receipt issued by the commanding officer fo the ship when the cargo is loaded on board, and contains the information about the name of the vessel, berth, date of shipment, description of packages, marks and numbers, condition of the cargo at the time of receipt on board the ship, etc. The port superintendent, on receipt of port dues, hands over the mate’s receipt to the C&F agent.

Question 11.
What is a letter of credit? Why does an exporter need this document?
Answer:
A letter of credit is a guarantee issued by the importer’s bank that it will honor up to a certain amount of export bills to the bank of the exporter. Letter of credit is the most appropriate and secured method of payment adopted to settle international transactions.

The exporter needs this letter to Insure against the non – payment of dues by the importer in the foreign countr as there is always a risk in the collection of payment from the importers. Thus, in order to protect the exporter from financial loss “Letter of credit” is needed.

Question 12.
Discuss the process involved in securing payment for exports.
Answer:
The process involved in securing payment for exports includes the following steps:

  1. After the shipment of goods, the exporter informs the importer about the shipment of goods.
  2. The exporter sends the documents like certified copy of invoice, bill of lading, packing list, etc. needed by the importer to claim the title of goods on their arrival at his / her country and getting them customs cleared. These documents are sent through exporter’s banker with the instruction that these may be delivered to the importer after acceptance of the bill of exchange.
  3. On receiving the bill of exchange, the importer releases the payment in case of sight draft or accepts the usance draft for making payment on maturity of the bill of exchange.
  4. The exporter’s bank receives the payment through the importer’s bank and is credited to the exporter’s account.
  5. The exporter can get immediate payment from his/her bank on the submission of documents by signing the letter of indemnity.
  6. After receiving the payment for exports, the exporter needs to get a bank certificate of payment which states that the necessary documents relating to the particular export consignment have been presented to the importer for payment and the payment has been received in accordance with the exchange control regulations.

1st PUC Business Studies Question Bank Chapter 12 International Business - II

Question 13.
Differentiate between the following

  1. Sight and usance drafts
  2. Bill of lading and airway bill
  3. Pre-shipment and post-shipment finance

Answer:
1. Sight and Usance Drafts:
In the case of sight draft, the drawer instructs the bank to hand over the relevant documents to the importer against payment. But in the case of the usance draft, the drawer – instructs the bank to hand over the relevant documents to the importer against acceptance of the bill of exchange.

2. Bill of Lading and Airway Bill:
Bill of lading is a document prepared and signed by the master of the ship acknowledging the receipt of goods on board, it contains terms and conditions on which the goods are to be taken to the port of destination On the other hand, Airway Bill is a document wherein an airline/ shipping company gives its official receipt of the goods on board its aircraft and at the same time gives an undertaking to carry them to the port of destination.

3. Pre-shipment and Post – shipment Finance:
Pre-shipment finance is provided to an exporter for financing the purchase, processing, manufacturing or packaging of goods for export purpose while the post-shipment finance is provided to the exporter from the date of extending the credit after the shipment of goods to the export country.

Question 14.
Explain the meaning of the following documents used in connection with import transactions

  1. Trade enquiry
  2. Import licence
  3. Shipment of advice
  4. Import general manifest
  5. Bill of entry

Answer:
1. Trade Enquiry:
A trade enquiry is a written request by an importing firm to the exporter for supply of information regarding the price and various terms and conditions on which the latter is ready to exports goods.

2. Import License:
License which permits the import of goods that can not be imported freely is called an import license. The importer needs to consult the Export Import (IZXIM) policy in force to know whether the goods that he or she wants import are subject to import licensing. In case goods can be imported only the license the importer needs to procure an import license.

3. Shipment of Advice:
Shipment advice contains information about the shipment of goods. The information provided in the shipment advice includes details such as invoice number, bill of lading/airways- bill number and date, name of the vessel with date, the port of export, description of goods and quantity, and the date sailing of vessel. The overseas supplier dispatches the shipment advice to the importer after loading the goods on the vessel.

4. Import General Manifest:
Import general manifest is a document that contains the details of the imported goods. It is a document on the basis of which unloading of cargo take splace. It is provided by the person in charge of the carrier (ship or airway) to the officer in charge at the dock.

5. Bill of Entry:
Bill of entry is a form filled by the importer for assessment of customs import duty. One appraiser examines the document carefully and gives the examination order. The importer procures the said document prepared by the appraiser and pays the duty, if any.

After payment of the import duty, the bill of entry has to be presented to the dock superintendent. The examiner gives his report on the bill of entry which is then presented to the port authority which isues the release order after receiving necessary charges.

Question 15.
List out major affiliated bodies of the World Bank.
Answer:
Major affiliated bodies of the World Bank are:

  1. International Bank for Reconstruction and Development (IBRD)
  2. International Financial Corporation (IFC)
  3. International Development Association (IDA)
  4. Multilateral Investment Guarantee Agency (MIGA)
  5. International Centre for Settlement of Investment Disputes(ICSID)

Question 16.
Write short notes on the following

  1. UNCTAD
  2. MIGA
  3. World Bank
  4. ITPO
  5. IMF

Answer:
1. UNCTAD:
The United Nationa Conference on Trade and Development (UNCTAD) was established in 1964 as a permanent intergovernmental body. It is the principal organ of the United Nations General Assembly dealing with trade, investment, and development issues.

The organization goals are to “maximize the trade, investment, and development opportunities of and developing countries and assist them in their efforts to integrate into the world economy on an equitable basis”. UNCTAD was created to address the concerns of developing countries over the international market, multi-national corporations, and the disparity between developed nations and developing nations.

The primary objective of the UNCTAD is to formulate policies relating to all aspects of development including trade, aid, transport, finance, and technology. The conference ordinarily meets once in four years. UNCTAD has 194 member tates and has its permanent secretariat in Geneva.

One of the principal achievements of UNCTAD has been to conceive and implement the Generalized System of Preferences (GSP). Under the GSP Scheme, manufactured goods exports and some agricultural goods from the developing countries enter duty – free or at reduced rates in the developed countries. This was done in order to promote exports of manufactured goods from developing countries.

2. MIGA:
The Multinational Investment Guarantee Agency (MIGA) was established in April, 1988 to supplement the functions ofthe World Bank and IFC with the following objectives:

  • To encourage flow of direct foreign investment into the less developed member countries.
  • To provide insurance cover to investors against political risks.
  • To provide guarantee against noncommercial risks (like dangers involved in currency transfer, war and civil disturbances and breach of contract).
  • To insure new investments, expansion of existing investments, privatization and financial restructuring.
  • To provide promotional and advisory services.
  • To establish credibility.

1st PUC Business Studies Question Bank Chapter 12 International Business - II

3. World Bank:
The International Bank for Reconstruction and Development (IBRD), commonly known as World Bank, was result of the Bretton Woods Conference. The main objectives behind setting up this international organisation were to aid the task of reconstruction of the war-affected economies of Europe and assist in the development of the underdeveloped nations of the world.

For the first few years, the World Bank remained preoccupied with the task of restoring war-tom nations in Europe. Having achieved success in accomplishing this task by late 1950s, the World Bank turned its attention to the development of underdeveloped nations.

It realised that by investing more and more in these countries, especially in social sectors like health and education; it could bring about the needed social and economic transformation of the developing countries. To give shape to this investment aspect in the underdeveloped nations, the International Development Association (IDA) was formed in the year 1960.

The main objective underlying setting up IDA has been to provide loans on concessional terms and conditions to those countries whose per capita incomes are below a critical level. Concessional terms and conditions mean that

  • Repayment period is much longer than the repayment period of IBRD
  • The borrowing nation need not pay any interest on the borrowed amount. IDA, thus, provides interest free

long-term loans to the poor nations.
IBRD also provides loans but these carry interest charged on commercial basis. Over the time, additional organisations have been set up under the umbrella of the World Bank. As of today, the World Bank is a group of five international organisations responsible for providing finance to different countries. The group and its affiliates headquartered in Washington DC catering to various financial needs are listed in the Box A on World Bank and its affiliates.

Functions of the World Bank:
As mentioned earlier, the World Bank is entrusted with the task of economic growth and widening of the scope of international trade. During its initial years of inception, it placed more emphasis on developing infrastructure fecilities like energy, transportation and others.

No doubt all this has benefited the under-developed nations too, but the results were not found to be very satisfactory due to poor administrative structure, lack of institutional framework and non availability of skilled labour in these countries. Moreover, since the underdeveloped countries depend heavily on agriculture and small industries, the attempt to develop infrastructure had hardly any effect on these two sectors.

Realising these problems, the World Bank later decided to divert resources to bring about industrial and agricultural development in these countries. Assistance is extended to different countries for raising cash crops so that their incomes rise and they may export the same for earning foreign exchange.

The bank has also been providing resources for education, sanitation, health care and small scale enterprises. Today, the services provided by the World Bank have increased manifold. The World Bank is no longer confined to simply providing financial assistance for infrastructure development, agriculture, industry, health and sanitation.

It is rather significantly involved in areas like removal of rural poverty through raising productivity, increasing income of the rural poor, providing technical support, and initiating research and cooperative ventures.

4. ITPO:
Indian Trade Promotion Organisation (ITPO) was setup on 1 st January, 1992 under the Companies Act, 1956 by the Ministry of Commerce, Government of India. Its head quarter is at New Delhi ITPO was formed by merging the two erstwhile agencies viz., Trade Development Authority and Trade Fair Authority of India.

ITPO is a service organization and maintains regular and close interaction with trade, industry and government. It serves the industry by organizing trade lairs and exhibitions within he country as well as abroad, It helps export firms in participating in international trade fairs and exhibitions, developing exports of new items and providing support and updated commercial business information. ITPO has five regional offices at Mumbai, Bengaluru, Kolkata, Kanpur and Chennai and four international offices at Germany, Japan, UAE and USA.

5. IMF
International Monetary Fund (IMF) is the second international organisation next to the World Bank. IMF which came into existence in 1945 has its headquarters located in Washington DC. In 2005, it had 191 countries as its members. 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.

Major objectives of IMF include:

  • To promote international monetary cooperation through a permanent institution.
  • To facilitate expansion of balanced growth of international trade and to contribute thereby to the promotion and maintenance of high levels of employment and real income.
  • To promote exchange stability with a view to maintain orderly exchange arrangements among member countries.
  • To assist in the establishment of a multilateral system of payments in respect of current transactions between members.

Functions of IMF:
Various functions are performed by the IMF to achieve the aforesaid objectives.

Some of the important functions of IMF include:

  • Acting as a short-term credit institution.
  • Providing machinery for the orderly adjustment of exchange rates.
  • Acting as a reservoir of the currencies of all the member countries, from which a borrower nation can borrow the currency of other nations.
  • Acting as a lending institution of foreign currency and current transaction.
  • Determining the value of a country’s currency and altering it, if needed, so as to bring about an orderly adjustment of exchange rates of member countries.
  • Providing machinery for international consultations.

Long Answer Questions

Question 1.
Rekha Garments has received an order to export 2000 men’s trousers to Swift Imports Ltd. located in Australia. Discuss the procedure that Rekha Garments would need to go through for executing the export order.
Answer:
Steps involved in executing the export order are as follows:
1. Assessing Creditworthiness of Swift Imports Limited and Securing a Guarantee for Payments: After receiving the receipt of indent, Rekha Garments should make necessary enquiry about the Creditworthiness of Swift Imports Limited, in order to assess the risks of non – payment by the importer.

2. Obtaining Export License:
After assuring about payments, the exporting firm Rekha Garments would initiate the steps relating to compliance of export regulations which demand that the export firm must have an export license before in proceeds with exports.

3. Obtaining Pre-shipment Finance:
Rekha Garments would then approach its banker for obtaining pre-shipment finance to undertake export production, for procuring raw materials and other components, processing and packing of goods and transportation of goods to the port of shipment.

4. Production or Procurement of Goods:
Rekha garments would proceed to get the goods ready as per the specifications of the importer: Either the firm would itself product the goods or else buy them from the market.

5. Pre-shipment Inspection:
If the product to be exported comes under the category of compulsory inspection, Rekha Garments needs to contact the Export Inspection Agency (EIA) or the other designated agency for obtaining inspection certificate.

6. Excise Clearance:
Rekha Garments would then have to apply to the concerned Excise Commissioner in the region with an invoice. If the Excise Commissioner is satisfied, he would issue the excise clearance Rekha Garments may get the refimd of excise duty known as drawback as it is exporting the goods.

7. Obtaining Certificate of Origin:
Some importing countries provide tariff concessions or other exemptions to the goods coming from a particular country. If such benefits are available, the importer may ask the exporter to send a certificate of origin.

8. Reservation of Shipping Space:
The exporting firm applies to the shipping company for provision of shipping space. It has to specifiy the types of goods to be exported, probable date of shipment and destination, the port of destination. On acceptance of application for shipping, the shipping company issues a shipping order.

9. Packing and Forwarding:
The goods are then properly packed and marked with necessary details such as name and address of the importer, gross and net weight, port of shipment and destination, country of origin, etc. Rekha Garments would then have to make necessary arrangements for transportation of goods to the port.

10. Insurance of Goods:
The exporter would then get the goods insured with an insurance company to protect against the risks of loss or damage of the goods due to the perils of the sea during the transit.

11. Obtaining Mates Receipt:
The goods are then loaded on board the ship for which the mate or the captain of the ship issues mate’s receipt to the port superintendent.

12. Payment of Freight and Issuance of Bill of Lading After the receipt of freight, the shipping company would issue a bill of lading which serves as an evidence that the shipping company has accepted the goods for carrying to the designated destination.

13. Preparation of Invoice:
After sending the goods, an invoice of the dispatched goos would be prepared. The invoice states the quantity of goods sent and the amount to be paid by the importer and would be presented to Swift Imports Limited for payment.

1st PUC Business Studies Question Bank Chapter 12 International Business - II

Question 2.
Your firm is planning to import textile machinery from Canada. Describe the procedure involved in importing.
Answer:
Following is the procedure involved in importing textile machinery from Canada:
1. Trade Enquiry:
The importing firm approaches the textile machinery export firms in Canada with the help of trade enquiry they collecting information about their export prices and terms of exports. After receiving a trade enquiry, the exporter will prepare a quotation called proforma invoice and send it to our firm.

2. Procurement of Import Licence:
We will consult the Export Import (EXIM) policy in force to know whether the textile machinery imports are subject to import licensing. In case it can be imported only against the license, we will procure an import license.

3. Obtaining Foreign Exchange:
As payment for imports will be made in Canadian dollars, our firm will have to make an application to a bank authorized by RBI to issue foreign exchange.

4. Placing Order or Indent:
After obtaining the import license, our firm will place an import order or indent with the exporter for supply of the specified products containing information about the price, quantity, grade and quality of machinery and the instructions relating to packing, shipping, ports of shipment and destination, delivery schedule, insurance and mode of payment.

5. Obtaining Letter of Credit:
If the payment terms agreed between us and the overseas supplier then our firm should obtain the letter of credit from its bank and forward it to the overseas supplier.

6. Arranging for Finance:
Our firm would make arrangements in advance to pay to the exporter on arrival of goods at the port.

7. Receipt of Shipment Advice:
Advice afterloading the ordered textile machinery on the vessel, the overseas supplier will dispatch the shipment advice to our firm which contains information about the shipment of goods.

8. Retirement of Import Documents:
After shipping the machinery, the overseas supplier will prepare a set of necessary documents including bill of exchange, commercial invoice, bill of lading/airway bill, packing list, certificate of origin, marine insurance policy, etc. and will hand it over to his or her banker for their onward transmission and negotiation to our firm.

The acceptance of bill of exchange for the purpose of getting delivery of the documents is known as retirement of import documents after which the bank handover the import documents to the importer.

9. Arrivals of Goods:
Goods will be shipped by the overseas supplier as per the contract. The officer in charge at the dock will provide the document called import general manifest on the basis of which unloading of cargo will take place.

10. Customs Clearance and Release of Goods:
Textile machinery imported into India will have to pass through customs clearance. Firstly, our firm will have to obtain a delivery order, pay dock dues and obtain port trust dues receipt and then fill in a form bill of entry has to be presented to the dock superintendent. The examiner will give his report on the bill of entry and we will present the bill of entry to the port authority who will issue the release order after receiving necessary charges.

Question 3.
Discuss the principal documents used in exporting.
Answer:
Following are the principal documents used in exporting:
1. Documents related to goods:
(i) Export invoice:
Export invoice is a sellers’ bill for merchandise and contains information about goods such as quantity, total value, number of packages, marks on packing, port of destination, name of ship, bill of lading number, terms of delivery and payments, etc.

(ii) Packing list:
A packing list is a statement of the number of cases or packs and the details of the goods contained in these packs. It gives details of the nature of goods which are being exported and the form in which these are being sent.

(iii) Certificate of origin:
This is a certificate which specifies the country in which the goods are being produced. This certificate entitles the importer to claim tariff concessions or other exemptions such as non-applicability of quota restrictions on goods originating from certain pre-specified countries.

This certificate is also required when there is a ban on inports of certain goods from select countries. The goods are allowed to be brought into the importing country if these are not originating from the banned countries.

(iv) Certificate of inspection:
For ensuring quality, the government has made it compulsory for certain products that these be inspected by some authorised agency. Export Inspection Council of India (EICI) is one such agency which carries out such inspections and issues the certificate that the consignment has been inspected as required under the Export (Quality Control and Inspection) Act, 1963, and satisfies the conditions relating to quality control and inspection as applicable to it, and is export worthy. Some countries have made this certificate mandatory for the goods being imported to their countries.

2. Documents related to shipment:
(i) Mate ’s receipt:
This receipt is given by the commanding officer of the ship to the. exporter after the cargo is loaded on the ship. The mate’s receipt indicates the name of the vessel, berth, date of shipment, description of packages, marks and numbers, condition of the cargo at the time of receipt on board the ship, etc. The shipping company does not issue the bill of lading unless it receives the mate’s receipt.

(ii) Shipping Bill:
The shipping bill is the main document on the basis of which customs office grants permission for the export. The shipping bill contains particulars of the goods being exported the name of the vessel, the port at which goods are to be discharged, country of final destination, exporter’s name and address, etc.

(iii) Bill of lading:
Bill of lading is a document wherein a shipping company gives its official receipt of the goods put on board its vessel and at the same time gives an undertaking to carry them to the port of destination. It is also a document of title to the goods and as such is freely transferable by the endorsement and delivery.

(iv) Airway Bill:
Like a bill of lading, an airway bill is a document wherein an airline company gives its official receipt of the goods on board its aircraft and at the same time gives an undertaking to carry them to the port of destination. It is also a document of title to the goods and as such is freely transferable by the endorsement and delivery.

(v) Marine insurance policy:
It is a certificate of insurance contract whereby the insurance company agrees in consideration of a payment called premium to indemnify the insured against loss incurred by the latter in respect of goods exposed to perils of the sea.

(vi) Cart ticket:
A cart ticket is also known as a cart chit, vehicle or gate pass. It is prepared by the exporter and includes details of the export cargo in terms of the shipper’s name, number of packages, shipping bill number, the port of destination and the number of the vehicle carrying the cargo.

3. Documents related to payment:
(i) Letter of credit:
A letter of credit is a guarantee issued by the importer’s bank that it will honour up to a certain amount the payment of export bills to the bank of the exporter. Letter of credit is the most appropriate and secure method of payment adopted to settle international transactions

(ii) Bill of exchange:
It is a written instrument whereby the person issuing the instrument directs the other party to pay a specified amount to a certain person or the bearer of the instrument. In the context of an export-import transaction, bill of exchange is drawn by exporter on the importer asking the latter to pay a certain amount to a certain person or the bearer of the bill of exchange. The documents giving title to the export consignment are passed on to the importer only when the importer accepts the order contained in the bill of exchange.

(iii) Bank certificate of payment:
Bank certificate of payment is a certificate that the necessary documents (including bill of exchange) relating to the particular export consignment has been negotiated (i.e., presented to the importer for payment) and the payment has been received in accordance with the exchange control regulations.

1st PUC Business Studies Question Bank Chapter 12 International Business - II

Question 4.
List and explain various incentives and schemes that the government has evolved for promoting the country’s export.
Answer:
(i) 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.

Such refunds are called duty draw backs. Some major duty draw backs include refund of excise duties paid on goods meant for exports, refund of customs duties paid on raw materials and machines imported for export production. The latter is also called customs drawback.

(ii) Export manufacturing under bond scheme:
This facility entitles firms to produce goods without payment of excise and other duties. The firms desirous of availing such facility have to give an undertaking (i.e., bond) that they are manufacturing goods for export purposes and will export such products on their production.

(iii) 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. Now this benefit of exemption from income tax is available only to 100 percent Export Oriented Units (100 percent EOUs) and units set up in Export Processing Zones (EPZs)/Special Economic Zones (SEZs) for select years.

We shall shortly discuss about the 100 percent Export Oriented Units (100 percent EOUs) and units set up in Export Processing Zones (EPZs)/Special Economic Zones (SEZs) in the succeeding paragraphs.

(iv) Advance licence 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. As such the exporter is not required to pay customs duty on goods imported for use in the manufacture of export goods. The advance licences are available to both the types of exporters those who export on a regular basis and also to those who export on an Adhoc basis.

The regular exporters can avail such licences against their production programmes. The firms exporting intermittently can also obtain these licences against specific export orders.

(v) Export Promotion Capital Goods Scheme (EPCG):
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. If the said conditions are fulfilled by the manufacturers, then they can import the capital goods either at zero or concessional rate of import duty.

Supporting manufacturers and service providers are also eligible to import capital goods under this scheme. This scheme is especially beneficial to the industrial units interested in modernization and upgradation of their existing plant and machinery. Now service export firms can also avail of this facility for importing items such as computer software systems required for developing software for purposes of exports.

(vi) Scheme of recognising export firms as export house, trading house and superstar trading house:
With an objective to promote established exporters and assist them in marketing their products in international markets, the government grants the status of Export House, Trading House, Star Trading House to select export firms. This status is granted to a firm on its achieving a prescribed average export of performance in past select years.

Besides attaining a minimum of past average export performance, such export firms have to also fulfill other conditions as laid down in the import-export policy. Various categories of export houses have been recognised with a view to building marketing infrastructure and expertise required for export promotion.

These houses are given national recognition for export promotion. They are required to operate as highly professional and dynamic institutions and act as an important instrument of export growth.

(vii) Export of Services:
In order to boost the export of services, various categories of service houses have been recognised. These houses are recognised on the basis of the export performance of the service providers. They are referred to as Service Export House, International Service Export House, International Star Service Export House based on their export performance.

(viii) Export finance:
Exporters require finance for the manufacture of goods. Finance is also needed after the shipment of the goods because it may take sometime to receive payment from the importers. Therefore, two types of export finances are made available to the exporters by authorised banks. They are termed as pre-shipment finance or packaging credit and post-shipment finance.

Under the preshipment finance, finance is provided to an exporter for financing the purchase, processing, manufacturing or packaging of goods for export purpose. Under the post-shipment finance scheme, finance is provided to the exporter from the date of extending the credit after the shipment of goods to the export country. The finance is available at concessional rates of interest to the exporters.

(ix) Export Processing Zones (EPZs):
Export Processing Zones are industrial estates, which forni enclaves from the Domestic Tariff Areas (DTA). These are usually situated near seaports or airports. They are intended to provide an internationally competitive duty-free environment for export production at low cost. This enables the products of EPZs to be competitive, both qualitywise and pripe-wise, in the international markets.

These zones have been set up at various places in India which include: Kandla (Gujarat), Santa Cruz (Mumbai), Falta(West Bengal), Noida (Uttar Pradesh), Cochin (Kerala), Chennai (Tamil Nadu), and Vishakapatnam (Andhra Pradesh). Santa Cruz zone is exclusively meant for electronic goods and gem and jewellery items. All other EPZs deal with multifarious items.

Recently the EPZs have been converted to Special Economic Zones (SEZs) which are more advanced form of export processing zones. These SEZs are free from all rules and regulations governing imports and exports units except relating to labour and banking Government has also permitted development of EPZs by private, state or joint sector. The inter-ministerial committee on private EPZs has already cleared proposals for setting up of private EPZs in Mumbai, Surat and Kanchipuram.

(x) 100 percent Export Oriented Units (100 percent EOUs):
The 100 percent Export Oriented Units scheme, introduced in early 1981, is complementary to the EPZ scheme. It adopts the same production regime, but offers a wider option in location with reference to factors like source of raw materials, ports, hinterland facilities, availability of technological skills, existence of an industrial base and the need for a larger area of land for the project. EOUs have been established with a view to generating additional production capacity for exports by providing an appropriate policy framework, flexibility of operations and incentives.

1st PUC Business Studies Question Bank Chapter 12 International Business - II

Question 5.
Identify various organisations that have been set up in the country by the government for promoting country’s foreign trade.
Answer:
Various organizations that have been set up in the country by the government for promoting country’s foreign trade are as follows:
1. Department of Commerce:
Department of Commerce in the Ministry of Commerce, Government of India is the apex body responsible for the country’s external trade and all matters connected with it. This may be in the form of increasing commercial relations with other countries, state trading, export promotional measures and the development, and regulation of certain export oriented industries and commodities. The Department of Commerce formulates policies in the sphere of foreign trade. It also frames the import and export policy of the country in general.

2. Export Promotion Councils (EPCs):
Export Promotion Councils are non profit organisations registered under the Companies Act or the Societies Registration Act, as the case may be. The basic objective of the export promotion councils is to promote and develop the country’s exports of particular products falling under their jurisdiction. At present there are 21 EPC’s dealing with different commodities.

3. Commodity Boards:
Commodity Boards are the boards which have been specially established by the Government of Ifidia for the development of production of traditional commodities and their exports. These boards are supplementary to the EPCs. The functions of commodity boards are similar to those of EPCs. At present there are seven commodity boards in India: Coffee Board, Rubber Board, Tobacco Board, Spice Board, Central Silk Board, Tea Board, and Coir Board.

4. Export Inspection Council (EIC):
Export Inspection Council of India was setup by the Government of India under Section 3 of the Export Quality Control and Inspection Act 1963. The council aims at sound development of export trade through quality control and pre-shipment inspection.

The council is an apex body for controlling the activities related to quality control and pre-shipment inspection of commodities meant for export. Barring a few exceptions, all the commodities destined for exports must be passed by EIC.

5. Indian Trade Promotion Organisation(ITPO):
Indian Trade Promotion Organisation was setup on 1 st January 1992 under the Companies Act 1956by the Ministry ofCommerce, Government oflndia. Its headquarter is at New Delhi. ITPO was formed by merging the two erstwhile agencies viz., Trade Development Authority and Trade Fair Authority of lndia.

ITPO is a service organisation and maintains regular and close interaction with trade, industry and Government. It serves the industry by organising trade fairs and exhibitions both within the country and outside, It helps export firms participate in international trade fairs and exhibitions, developing exports of new items, providing support and updated commercial business information. ITPO has five regional offices at Mumbai, Bangalore, Kolkata, Kanpur and Chennai and four international offices at Germany, Japan, UAE and USA.

6. Indian Institute of Foreign Trade (IIFT):
Indian Institute of foreign Trade is an institution that was setup at 1963 by the Government of India as an autonomous body registered under the Societies Registration Act with the prime objective of professionalizing the country’s foreign trade management; It has recently been recognised as Deemed University. It provides training in international trade, conduct researches in areas of international business, and analysing and disseminating data relating to international trade and investments.

7. Indian Institute of Packaging (IIP):
The Indian Institute of Packaging was set up as a national institute jointly by the Ministry of Commerce, Government of India, and the Indian Packaging industry and allied interests in 1966. Its headquarters and principal laboratory is situated at Mumbai and three regional laboratories are located at Kolkata, Delhi and Chennai.

It is a training-cum-research institute pertaining to packaging and testing. It has excellent infrastructural facilities that cater to the various needs of the package manufacturing and package user industries. It caters to the packaging needs with regard to both the domestic and export markets.

It also undertakes technical consultancy, testing services on packaging developments, training and educational programmes, promotional award contests, information services and other allied activities.

8. State Trading Organisations:
A large number of domestic firms in India found it very difficult to compete in the world market. At the same time, the existing trade channels were unsuitable for promotion of exports and bringing about diversification of trade with countries other than European countries. It was under these circumstances that the State Trading Organisation (STC) was setup in May 1956.

The main objective of the STC is to stimulate trade, primarily export trade among different trading partners of the world. Later the government set up many more organisations such as Metals and Minerals Trading Corporation (MMTC), Handloom and Handicrafts Export Corporation (HHEC).

1st PUC Business Studies Question Bank Chapter 12 International Business - II

Question 6.
What is World Bank? Discuss its various objectives and role of its affiliated agencies.
Answer:
The World Bank was established in 1944, the International Bank for Reconstructive and Development (IBRD), is the common name ofWorld Bank, which was formed as a result of the Breton Woods Conference. The main objectives behind setting up this international organization to aid the task of reconstruction of the war affected economics of Europe and assist in the development of the underdeveloped nation of the world, Till late 1950s, the World Bank remained preoccupied with the task of restoring war – tom nations in Europe after which it turned its attention to the development of underdeveloped nations.

Various objectives and roles of its affiliated agencies are given below International Development Association (IDA):
The Main objectives of IDA are:

  • It provides finance on easy terms.
  • It provides help in poverty alleviation.
  • It provides help in economic development programmes.
  • Extend macroeconomic management services.

The Multinational Investment Guarantee Agency (MIGA) Major objectives of MIGA are:

  • To encourage flow of direct foreign investment into the less developed member countries.
  • To provide insurance cover to investors against political risks.
  • To provide guarantee against non – commercial risks (like dangers involved in currency transfer, war and civil disturbances and breach of contract).
  • To insure new investments, expansion of existing investments, privatization and financial restructuring.
  • To provide promotional and advisory services.
  • To establish credibility.

We can conclude that the World Bank is no longer confined to simply providing financial assistance for infrastructure development, agriculture, industry, health and sanitation and is involved in areas like removal of mral poverty through raising productivity, providing technical support, and initiating reasearch and cooperative ventures.

Question 7.
What is IMF? Discuss its various objectives and functions.
Answer:
International Monetary Fund (IMF) is the second international organisation next to the World Bank. IMF which came into existence in 1945 has its headquarters located in Washington DC. In 2005, it had 191 countries as its members. 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.

Major objectives of IMF include:

  1. To promote international monetary cooperation through a permanent institution.
  2. To facilitate expansion of balanced growth of international trade and to contribute thereby to the promotion and maintenance of high levels of employment and real income.
  3. To promote exchange stability with a view to maintain orderly exchange arrangements among member countries.
  4. To assist in the establishment of a multilateral system of payments in respect of current transactions between members.

Functions of IMF:
Various functions are performed by the IMF to achieve the aforesaid objectives. Some of the important functions of IMF include:

  1. Acting as a short-term credit institution.
  2. Providing machinery for the orderly adjustment of exchange rates.
  3. Acting as a reservoir of the currencies of all the member countries, from which a borrower nation can borrow the currency of other nations.
  4. Acting as a lending institution of foreign currency and current transaction.
  5. Determining the value of a country’s currency and altering it, if needed, so as to bring about an orderly adjustment of exchange rates of member countries.
  6. Providing machinery for international consultations.

Question 8.
Write a detailed note on features, structure, objectives and functioning of WTO.
Answer:
GATT was transformed into World Trade Organisation (WTO) with effect from 1 st January 1995. The headquarters of WTO are situated at Geneva, Switzerland.
Objectives of WTO:
The basic objectives of WTO are similar to those of GATT, i.e., raising standards of living and incomes, ensuring fall employment, expanding production and trade, and optimal use of the world’s resources. The major difference between the objectives of GATT and WTO is that the objectives of WTO are more specific and also extend the scope of WTO to cover trade in services.

WTO objectives, moreover, talk of the idea of‘sustainable development’ in relation to the optimal use of the world’s resources so as to ensure protection and preservation of the environment. Keeping in view the above discussion, we can state more explicitly the following as the major objectives of WTO:

  • To ensure reduction of tariffs and other trade barriers imposed by different countries.
  • To engage in such activities which improve the standards of living, create employment, increase income and effective demand and facilitate higher production and trade.
  • To facilitate the optimal use of the world’s resources for sustainable development.
  • To promote an integrated, more viable and durable trading system.

Functions of WTO:
The major functions of WTO include:

  1. Promoting an environment that is encouraging to its member countries to come forward to WTO in mitigating their grievances.
  2. Laying down a commonly accepted code of conduct with a view to reducing trade barriers including tariffs and eliminating discriminations in international trade relations.
  3. Acting as a dispute settlement body.
  4. Ensuring that all the rules regulations prescribed in the Act are duly followed by the member countries for the settlement of their disputes.
  5. Holding consultations with IMF and IBRD and its affiliated agencies so as to bring better understanding and cooperation in global economic policy making.
  6. Supervising on a regular basis the operations of the revised Agreements and Ministerial declarations relating to goods, services and Trade Related Intellectual Property Rights (TRIPS).

Benefits of WTO:
Since its inception in 1995, WTO has come a long way in constituting the legal and institutional foundation of the present day multilateral trading system It has been instrumental not only in facilitating trade, but also in improving living standards and cooperation among member countries. Some of the major benefits of WTO are as follows:

  1. WTO helps promote international peace and facilitates international business.
  2. All disputes between member nations are settled with mutual consultations.
  3. Rules make international trade and relations very smooth and predictable.
  4. Free trade improves the living standard of the people by increasing the income level.
  5. Free trade provides ample scope of getting varieties of qualitative products.
  6. Economic growth has been fastened because of free trade.
  7. The system encourages good government.
  8. WTO helps fostering growth of developing countries by providing them with special and preferential treatment in trade related matters.

1st PUC Business Studies International Business – II Additional Questions and Answers

One Mark Questions

Question 1.
Expand I EC.
Answer:
Import Export Code.

1st PUC Business Studies Question Bank Chapter 12 International Business - II

Question 2.
Expand WTO.
Answer:
World Trade Organisation.

Question 3.
Mention any one document of export trade.
Answer:
Shipping Bill.

Question 4.
Expand FTZ.
Answer:
Free Trade Zones.

Question 5.
Expand SEZ.
Answer:
Special Economic Zones.

Question 6.
Expand IIFT.
Answer:
Indian Institute of Foreign Trade.

Question 7.
Expand IMF.
Answer:
International Monetary Fund.

Question 8.
What is D.P bill?
Answer:
DP in payment term of imports and exports means Documents against Payments.

Question 9.
What is D.A bid?
Answer:
DA in payment term of international trade means, Documents against Acceptance

Question 10.
Expand BOL.
Answer:
Bill of Lading.

Question 11.
Expand EIC.
Answer:
Export Inspection council.

Question 12.
Expand UNCTAD.
Answer:
United Nations Conference on Trade and Development.

Question 13.
Expand EPZ.
Answer:
Export Processing Zones.

Question 14.
Expand EOU.
Answer:
Export Oriented Units.

Question 15.
Name any one export processing zone.
Answer:
Cochin export processing zone.

Two Marks Questions

Question 1.
State any two Free trade zones.
Answer:

  1. Hardware Park, Hyderabad.
  2. Inspira Pharma and Renewable Energy Park.

1st PUC Business Studies Question Bank Chapter 12 International Business - II

Question 2.
What is Mate receipt?
Answer:
Mate receipt is a receipt issued by the captain of the ship or his assistant called Mate, after the goods are board on the ship.

Question 3.
What is Indent?
Answer:
Order for goods under specified conditions of sale, the acceptance of which by the supplier constitutes a contract of sale is called as Indent.

Question 4.
Give the meaning of Enquiry.
Answer:
Potential buyer of a particular product sends and enquiry to various exporters requesting them for information regarding price, quantity, terms and conditions for export of goods is known as enquiry.

Question 5.
What is certificate of origin?
Answer:
Certificate of origin is a document used in international trade in a printed form or as an Electronic document, it is completed by the exporter and certified by a recognized issuing body, attesting that the goods in a particular export shipment have been produced, manufactured or processed in a particular country.

Question 6.
What is the necessity of pre-shipping inspection?
Answer:
Pre-shipment inspection is a part of supply chain management and an important quality control method for checking the quality of goods clients buy from suppliers.

Question 7.
What is advance licensing scheme?
Answer:
Advanced licensing scheme is scheme where the exporter is allowed duty free supply of domestic as well as imported inputs required for the manufacture of export goods.

Question 8.
What is export inspection council?
Answer:
These are nonprofit organisations registered under the companies act or the societies act. The basis objective is to promote and develop the country’s export of particular produces failing under their jurisdictions.

Question 9.
State any two International trading Organisations.
Answer:

  • World Trade Organisation
  • United Nations Conference on Trade and Development

Question 10.
Give the meaning of Export license.
Answer:
A license that a government issues to an exporter granting permission to sell certain goods to a given country is called export license.

Question 11.
What is shipping Order?
Answer:
A shipping order typically is sent along with a shipment of goods so that the person receiving them can verify that the document correctly reflects the items that they actually received.

1st PUC Business Studies Question Bank Chapter 12 International Business - II

Question 12.
What is shipping bill?
Answer:
The shipping bill contains particulars of the goods being exported, the name of the vessel, the port at which goods are to be discharged, country to final destination exporters name and address etc.

Question 13.
What is Bill of lading?
Answer:
It is the final receipt issued by the shipping company after goods are shipped. It is exchanged for mate receipt. It is also a document of title to goods and can be transferred freely by endorsement and delivery

Question 14.
Write the meaning of Letter of credit.
Answer:
It is a document that contains a guarantee; from the importer bank to the exporters bank that, it is undertaking to honour the payment .up to a certain amount of the bills issued by the exporter for export of the goods to importer.

Question 15.
What is Bill of Entry?
Answer:
It is a form supplied by the custom office to the importer. It is to be filled by the importer at the time of receiving the goods.

Question 16.
Why is pre-shipment finance necessary?
Answer:
Pre-shipment finance is necessary to the business because it is issued by a financial institution when the seller want the payment of goods before shipment.

Question 17.
What are export oriented units?
Answer:
It is complementary to the Export processing zones scheme. EOU’s are the production units which exports their entire production.

Question 18.
Name any two Export processing zones.
Answer:

  1. Noida Export Processing Zones
  2. Madras Export Processing Zones

Question 19.
What is meant by pre-shipment finance?
Answer:
Finance provided to exporters for purchasing, processing manufacturing or packing of export goods is called pre-shipment of finance.

Question 20.
What do you mean by duty draw back scheme?
Answer:
A refund that can be obtained when an inport fee has already been paid for a good, but the good is then subsequently exported.

1st PUC Business Studies Question Bank Chapter 12 International Business - II

Question 21.
What is meant by Export manufacturing under bond scheme?
Answer:
Under the Manufacture under Bond Scheme, all factories registered to produce their goods for export are exempted from import duty and other taxes on inputs used to manufacture such goods, against this the manufacturer is allowed to import goods without paying any customs duty.

Question 22.
What is meant by shipment advice?
Answer:
Letter or form sent by an exporter to a foreign buyer informing that the shipment of the ordered goods is on its way.

Question 23.
Name any two export trade documents.
Answer:

  • Inspection certificate
  • Packing List

Question 24.
Name any two import documents.
Answer:

  • Letter of Credit
  • Import Order

Question 25.
What is Air way bill?
Answer:
It is a document where in airway gives its official receipt of the goods on board its aircraft and at the same time gives an undertaking to carry them to the port of destination.

Question 26.
Give any two examples for commodity board.
Answer:

  • Coffee Board
  • Rubber Board

Question 27.
Name any two Export promotion schemes?
Answer:

  1.  Exports from India scheme
  2. Duty exemption & remission schemes

Question 28.
Give the meaning of Letter of inspection.
Answer:
An inspection certificate provides proof that what you are shipping is, in feet, what the customer ordered, and is also of good quality.

Question 29.
Give the meaning of Import general manifest.
Answer:
It is a document that contains the details of the imported goods. It is the document on the basis of which unloading of goods take place.

Question 30.
What is export invoice?
Answer:
An export invoice acts as a bill of sale between a buyer and seller, describes what you are exporting, and references important transaction numbers.

Question 31.
What is packing list?
Answer:
Itemized list of articles usually included in each shipping package, giving the quantity, description, and weight of the contents is called as packing list.

Question 32.
Give the meaning of export inspection council.
Answer:
It aims at sound development of export trade through quality control and pre-shipment inspection. . .

1st PUC Business Studies Question Bank Chapter 12 International Business - II

Question 33.
Name any two organisations set up by the government to promote export trade.
Answer:

  1. Export Promotion Council for EOUs and SEZ Units.
  2. Export Promotion Council for Handicrafts.

Five Marks Questions

Question 1.
Briefly explain the Scope of International Business
Answer:
1. Merchandise exports and imports:
Merchandise means goods that are tangible, i.e., those that can be seen and touched. When viewed from this perceptive, it is clear that while merchandise exports means sending tangible goods abroad, merchandise imports means bringing tangible goods from a foreign country to one’s own country.

2. Service exports and imports:
Service exports and imports involve trade in intangibles. It is because of the intangible aspect of services that trade in services is also known as invisible trade. A wide variety of services are traded internationally.

3. Licensing and franchising:
Permitting another party in a foreign country to produce and sell goods under your trademarks, patents or copy rights in lieu of some fee is another way of entering into international business. It is under the licensing system that Pepsi and Coca Cola are produced and sold all over the world by local bottlers in foreign countries.

4. Foreign investments:
Foreign investment is another important form of international business. Foreign investment involves investments of funds abroad in exchange for financial return. Foreign investment can be of two types: direct and portfolio investments.

Question 2.
What are the benefits of International Business.
Answer:
Benefits to Nations:
1. Earning of foreign exchange:
International business helps a country to earn foreign exchange which it can later use for meeting its imports of capital goods, technology, petroleum products and fertilisers, pharmaceutical products and a host of other consumer products which otherwise might not be available domestically.

2. More efficient use of resources:
As stated earlier, international business operates on a simple principle—produce what your country can produce more efficiently, and trade the surplus production so generated with other countries to procure what they can produce more efficiently.

3. Improving growth prospects and employment potentials:
Producing solely for the purposes of domestic consumption severely restricts a country’s prospects for growth and employment.

4. Increased standard of living:
In the absence of international trade of goods and services, it would not have been possible for the world community to consume goods and services produced in other countries that the people in these countries are able to consume and enjoy a higher standard of living.

Benefits to Firms:

  • Prospects for higher profits: International business can be more profitable than the domestic business.
  • Increased capacity utilization: Many firms setup production capacities for their products which are in excess of demand in the domestic market.
  • Prospects for growth: Business firms find it quite frustrating when demand for their products starts getting saturated in the domestic market. Such firms can considerably improve prospects of their growth by plunging into overseas markets.
  • Way out to intense competition in domestic market: When competition in the domestic market is very intense, internationalization seems to be the only way to achieve significant growth.

Question 3.
What are the various Methods of Entry in International Business?
Answer:
1. Exporting and Importing:
Exporting refers to sending of goods and services from the home country to a foreign country. In a similar vein, importing is purchase of foreign products and bringing them into one’s home country. There are two important ways in which a firm can export or import products: direct and indirect exporting/importing.

2. Contract Manufacturing:
Contract manufacturing refers to a type of international business where a firm enters into a contract with one or a few local manufacturers in foreign countries to get certain components or goods produced as per its specifications.

3. Licensing:
Licensing is a contractual arrangement in which one firm grants access to its patents, trade secrets or technology to another firm in a foreign country for a fee called royalty. The firm that grants such permission to the other firm is known as licensor and the other firm in the foreign country that acquires such rights to use technology or patents is called the licensee. It may be mentioned here that it is not only technology that is licensed.

4. Franchising:
Franchising is a term very similar to licensing. One major distinction between the two is that while the former is used in connection with production and marketing of goods, the term franchising applies to service business. The other point of difference between the two is that franchising is relatively more stringent than licensing. Franchisers usually set strict rules and regulations as to how the franchisees should operate while running their business.

5. Joint Venture:
Joint venture is a very common strategy for entering into foreign markets. A joint venture means establishing a firm that is jointly owned by two or more otherwise independent firms. In the widest sense of the term, it can also be described as any form of association which implies collaboration for more than a transitory period.

1st PUC Business Studies Question Bank Chapter 12 International Business - II

Question 4.
What are the formalities performed by a forwarding agent?
Answer:
Formalities to be completed by Forwarding agent:

  1. Obtaining the custom permit: The agent has to apply to the custom office giving full details of the goods and also their destination in order to receive the custom permit.
  2. Obtaining shipping order: The agent has to secure adequate space in the ship for loading of goods.
  3. Completion of shipping bill and payment of export duty: The Agent has to fill in three copies of shipping bill and submit them to the custom-house.
  4. Payment of dock dues: The agent has to make arrangements for carrying the goods to the dock. For this purpose, two copies of properly completed ‘Dock Challan’ are submitted to the dock authorities.
  5. Custom’s verification before loading of goods: As soon as the ship touches the port, the dock authorities start loading the goods on it. Before the goods are actually loaded, custom officials verify them to know if there is anything on which duty remains to be paid or which is not mentioned in the shipping bill.
  6. Mate’s receipt: The captain or mate will issue a receipt known as “mates receipt” after the goods have been loaded. This receipt contains particulars like quantity of goods, number of packets, condition of packing, etc.
  7. Bill of lading: The forwarding agent has to present the mate’s receipt at the office of the shipping company and in exchange will get a document known as Bill of Lading.
  8. Insurance of cargo: As a safeguard against marine risks, it is necessary to insure the goods. Insurance must be done strictly according to the instructions, if any, of the importer as given in the indent.
  9. Advice to the exporter: The agent then informs the exporter about the shipment of goods and other related matters.

Ten Marks Questions

Question 1.
Explain in brief the Export Procedure.
Answer:
The procedure generally adopted for exporting goods to a foreign country is as follows:
1. Receipt of enquiry and sending quotations:
The importer of goods first sends an enquiry to different exporters requesting them to send information about price, quality, terms of payment etc.

2. Receipt of an indent or export order:
If the prospective importer finds the terms and conditions acceptable, then he places an order for export of goods which is known as indent.

3. Credit Enquiry: The exporter must ensure that there is no risk of default jn payment. He should verify the creditworthiness of the importer. For this purpose he may ask the importer to send a letter of credit, bank guarantee or any other guarantee.

4. Obtaining export license: Each and every country has its own import and export policy for free goods and restricted goods. An exporter in India has to complete various formalities and apply for export license to the appropriate authority. If the authority is satisfied it will issue the export license. To get an export license, the exporter must have

  • An IEC (Inporter Exporter Code) number
  • RCMC from appropriate export promotion council and
  • Registration with Export Credit and Guarantee Corporation (ECGC). The registration with ECGC safeguards against risk of non-payments.

5. Production or Procurement of goods:
The exporter has to produce the goods or buy them from the market. The goods must be in accordance with the instructions given in the indent regarding the quality, quantity, price, etc.

6. Pre-shipment Inspection:
To ensure that only good quality products are exported from our country, the Government of India has made compulsory pre-shipment inspection of goods by certain authorized agencies.

7. Excise Clearance:
In India, manufactured products are subject to excise duty under the Central Excise Act. Therefore excise clearance certificate is a must for the goods to be exported. It may be noted here that the Government of India has exempted excise duty in many cases if the goods are manufactured exclusively for the purpose of export.

8. Packing and marking of the goods:
Packing should be done strictly according to the instructions given in the indent. If loss arises due to defective packing, the exporter may have to bear it.

9. Appointment of forwarding agent:
Packed goods may be dispatched to the port directly by the exporter or through a forwarding agent. If the goods are stored in any location, the exporter may appoint a forwarding agent who will perform all the formalities on behalf of the exporter before shipping the goods. The forwarding agent will charge commission for this work.

10. Dispatch of goods:
The exporter has to dispatch the goods by rail/ road to the port town. He will send the R/R (railway receipt) to the forwarding agent along with other instructions. The agent will take delivery of the goods and complete other formalities before shipping them to the importer.

11. Formalities to be completed by Forwarding agent:

  • Obtaining the custom permit: The agent has to apply to the custom office giving full details of the goods and also their destination in order to receive the custom perfect.
  • Obtaining shipping order: The agent has to secure adequate space in the ship for loading of goods.
  • Completion of shipping bill and payment of export duty: The Agent has to fill in three copies of shipping bill and submit them to the custom-house.
  • Payment of dock dues: The agent has to make arrangement for carrying the goods to the dock. For this purpose, two copies of properly completed ‘Dock Challan’ are submitted to the dock authorities.
  • Custom’s verification before loading of goods: As soon as the ship touches the port,’ the dock authorities start loading the goods on it. Before the goods are actually loaded, custom officials verify them to know if there is anything on which duty remains to be paid or which is not mentioned in the shipping bill.
  • Mate’s receipt: The captain or mate will issue a receipt known as “mates receipt” after the goods have been loaded. This receipt contains particulars like quantity of goods, number of packets, condition of packing, etc.
  • Bill of lading: The forwarding agent has to present the mate’s receipt at the office of the shipping company and in exchange will get a document known as Bill of Lading.
  • Insurance of cargo: As a safeguard against marine risks, it is necessary to insure the goods. Insurance must be done strictly according to the instructions, if any, of the importer as given in the indent.
  • Advice to the exporter: The agent then informs the exporter about the shipment of goods and other related matters.

12. Preparation of export invoice and consular invoice:
Having received the advice from the forwarding agent, the exporter prepares an export invoice known as foreign invoice. This invoice states the quantity of goods sent and amount due from the importer.

13. Securing Payment:
There are two alternative methods by which payment can be received by the exporter.

  • etter of credit: The exporter can get immediate payment on the strength of the letter of credit which is issued by the importer’s bank in favor of the exporter. The exporter has to draw the bill in order to. get the payment from the local branch of the bank (in home country), which has issued the letter of credit on behalf of the importer.
  • Letter of hypothecation: If the exporter wants to receive payment immediately, he can get the bill (accepted by the importer) discounted with his bank.

1st PUC Business Studies Question Bank Chapter 12 International Business - II

Question 2.
Explain in brief the import Procedure.
Answer:
1. Obtaining import license and quota:
In all countries there are many government regulations to be followed. Sanction of government is necessary. Importer has to apply to the controller of imports for getting necessary permission Importer has to attach the following documents to his application form Receipt which shows that inport license fee has been paid.

  • Certificate from a Chartered Accountant showing the total value of goods to be imported.
  • Verification Certificate for income tax.

An import license may be general or specific. A general license allows imports from any country. But specific license allows imports from specific country only. The importer also has to obtain an import quota certificate from the concerned authority. It mentions the maximum quantity of goods which can be imported.

2. Obtaining foreign exchange:
Before placing any order, the importer must apply to the Exchange Control Department (ECD) of RBI (India’s Central Bank) for the release of requisite foreign exchange. The inporter should forward the application through his bank. The ECD verifies the application of the inporter, and if found valid, sanctions the foreign exchange for the particular transaction.

3. Placing an order:
The importer may either place the order directly or through the indent house (Agent). In case of canalized items, he obtains the imports through the canalizing agency. (Canalization means channelization of goods through a government agency like MMTC). The importer cannot directly import such canalized items. They have to place an order with the canalizing agency that shall import and supply the same.

4. Dispatching letter of credit:
After getting the confirmation from the supplier regarding the supply of goods, the importer requests his bank to issue a Letter of credit in favour of supplier. It can be defined as “an undertaking by importer’s bank stating that payment will be made to the exporter if the required documents are presented to the bank”.

5. Appointing clearing and forwarding agents:
The importer makes arrangement to appoint clearing and forwarding agents to clear the goods from the customs. Since clearing of goods is a specialized job, it is better to appoint C & F agents.

6. Receipt of shipment advice:
The importer receives the shipment advice from the exporter. The shipment advice states the date on which the goods are loaded on the ship. The shipment advice helps the importer to make arrangement for clearance of goods.

7. Receipts of documents:
Importer’s bank receives the documents from the exporter’s bank. The documents include bill of exchange, a copy of bill of lading, certificate of origin, commercial invoice, consular invoice, packing fist, and other relevant documents. The importer makes payment to the bank (if not paid earlier) and collects the documents.

8. Bill of entry:
This is a document required in case of import of goods. It is like shipping bill in case of exports. A Bill of Entry is the document testifying the feet that goods of the stated value and description in specified quantity are entering into the country from abroad.

9. Delivery order:
The clearing agents obtain the delivery order from the office of the shipping company. The shipping company gives the delivery order only after payment of freight, if any.

10. Clearing of goods:
The clearing agent pays the necessary dock or port trust dues and obtains the port Trust Receipt in two copies. He then approaches the Customs House and presents one copy of Port Trust Receipt and two copies of Bill of Entry to the customs authorities.

11. Payment to clearing and forwarding agent:
The importer then makes the necessary payment to the clearing agent for his various expenses and fees.

12. Payment to exporter:
The importer has to make payment to exporter. Usually, the exporter draws a bill of exchange. The importer has to accept the bill and make payment.

13. Follow up:
The importer then informs the exporter about the receipt of goods. If there are any discrepancies or damages to the goods, he should inform the exporter.

1st PUC Business Studies Question Bank Chapter 12 International Business - II

Question 3.
What are the important Documents for import trade?
Answer:

  1. Trade enquiry: A trade inquiry is a written request by an importing firm to the exporter for supply of information regarding the price and various terms and conditions on which the latter exports goods.
  2. Proforma invoice: A proforma invoice is a document that contains details as to the quality, grade, design, size, weight and price of the export product, and the terms and conditions on which their export will take place.
  3. Import order or indent: It is a document in which the buyer, (importer) orders for supply of requisite goods to the supplier (exporter). The order or indent contains information such as quantity and quality of goods to be imported, price to be charged, method of forwarding the goods, nature of packing, mode of payment, etc.
  4. Letter of credit: It is document that contains a guarantee from the importer bank to the exporter’s bank that it is undertaking to honour the payment up to a certain amount of the bills issued by the exporter for exports of the goods to the importer.
  5. Shipment advice: The shipment advice is a document that the exporter sends to the importer informing him that the shipment of goods has been made. Shipment of advice contains invoice number, bill of lading/airways bill number and date, name of the vessel with date, the port of export, description of goods and quantity, and the date of sailing of the vessel.
  6. BUI of lading: It is a document prepared and signed by the master of the ship acknowledging the receipt of goods on board. It contains terms and conditions on which the goods are to be taken to the port of destination.
  7. Bill of entry: Bill of entry is a form supplied by the customs office to the importer. It is to be filled in by the importer at the time of receiving the goods. It has to be in triplicate and is to be submitted to the customs office.
  8. Bill of exchange: It is a written instrument whereby the person issuing the instrument directs the other party to pay a specified amount to a certain person or the bearer of the instrument.

Question 4.
What are the Organizational Support available For Export?
Answer:
1. Export Promotion Councils (EPCs):
Export Promotion Councils are non profit organizations registered under the Companies Act or the Societies Registration Act, as the case may be. The basic objective of the export promotion councils is to promote and develop the country’s exports of particular products felling under their jurisdiction. At present there are 21 EPC’s dealing with different commodities.

2. Commodity Boards:
Commodity Boards are the boards which have been specially established by the Government of India for the development of production of traditional commodities and their exports. These boards are supplementary to the EPCs. The functions of commodity boards are similar to those of EPCs.

3. Indian Trade Promotion Organization (ITPO):
Indian Trade Promotion Organization was setup on Ist January 1992 under the Companies Act 1956 by the Ministry of Commerce, Government of India. Its headquarters is at New Delhi. ITPO was formed by merging the two erstwhile agencies viz.,

4. Trade Development Authority and Trade Fair Authority of India Indian Institute of Foreign Trade (IIFT):
Indian Institute of foreign Trade is an institution that was setup in 1963 by the Government of India as an autonomous body registered under the Societies Registration Act with the prime objective of professionalizing the country’s foreign trade management.

Indian Institute of Packaging (IIP):
The Indian Institute of Packaging was setup as a national institute jointly by the Ministry of Commerce, Government of India, and the Indian Packaging industry and allied interests in 1966. Its headquarters and principal laboratory is situated at Mumbai and three regional laboratories are located at Kolkata, Delhi and Chennai.

State Trading Organizations: A large number of domestic firms in India found it very difficult to compete in the world market. At the same time, the existing trade channels were unsuitable for the promotion of exports and bringing about diversification of trade with countries other than European countries.

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