TS Inter 2nd Year Commerce Study Material Chapter 8 International Trade

Telangana TSBIE TS Inter 2nd Year Commerce Study Material 8th Lesson International Trade Textbook Questions and Answers.

TS Inter 2nd Year Commerce Study Material 8th Lesson International Trade

Long Answer Type Questions

Question 1.
What is International Trade? How it differs from Internal Trade.
Answer:

1. International Trade refers to buying and selling of goods and services between nationals of different countries.
2. International Trade is also called as “Foreign Trade” or “External Trade”. .
3. How International Trade is different from internal Trade is explained below :

Internal Trade	International Trade
1. Refers to the trade within the country.	1. Refers to trade with other countries.
2. Does not involve any exchange of currencies.	2. Involves exchange of currencies.
3. There will be no restrictions.	3. Subjected to many restrictions.
4. There is scope for operation of demand and supply forces.	4. The scope for operation of demand and supply forces is restricted.
5. Transport costs and risks are less.	5. Transport costs and risks are more.
6. It facilities movement of goods from points of production to areas whre they are consumed in the home country, the globe.	6. It facilitates countries to specialize in manufacturing a particular line of products which enable them to sell those products across.
7. It helps to derive the benefits of specialization within country.	7. It helps all trading countries derive the benefits of specialization.
8. The movement of goods depends upon the development of internal transport system, especially road and rail.	8. The movement of goods take usually by road, rail, air and water transport.
9. The volume of trade depends upon the size of poplation, volume of production, development of banking and other supporting facilities.	9. There are restrictions imposed on free entry of goods and duties and taxes are to be paid. The volume of trade depends on this factor.

Question 2.
Explain the scope and importance of International Trade.
Answer:
Scope :
International Trade has a very wide scope.

The following aspects fall under the scope of International trade

1. International economics and trade theories.
2. Quantitative techniques for foreign trade.
3. Global business communication and public relatins.
4. Computer application in foreign trade.
5. Insurance and risk management is foreign trade.
6. International business loans.
7. Export and Import finance.
8. Foreign exchange and exchange control.
9. Export incentives.
10. Export pricing.

Importance of International Trade :

1. No country in the world is self sufficient, no country can produce all the goods it requires. This situation where one country is dependent on another country has created the need for international trade.
2. Nature endows each country with different types of natural resources. Therefore one country has to depend on some other country for natureal resources which result in need of foreign trade.
3. some countries are more suitabe placed to produce certain goods in large numbers more economically due to availability of raw material, labour, etc,. In such case foreign trade is needed to export its surplus prodction to other countries.
4. International trade is the back bone of our modem commercial world. International
   trade promotes increased international understanding, exchange of ideas, cultures, and world peace.
5. International trade has lowers the prices of goods and services all over the world.
6. Globalisation and liberalization policies of the governments across the globe with specific reference to international trade have made it possible.

Thus all the countries in the world have to depend upon another for meeting all their requirements it created the need for international trade.

Question 3.
Discuss the benefits of International trade.
Answer:
The benefits of international trade are discussed below :

1. It leads to better use of available resources.
2. It reduces wastage of resource. .
3. It equalizes the prices of goods throughout the world.
4. It helps countries to sell those goods which they have in surplus, and buy goods which are in short supply.
5. It create healthy competition.
6. It creates cordial relation ship between the people of different countries and leads to cultural advancement and International peace.
7. It brings about international division of labour and specialization.
8. It increase employment opportunities.
9. It increase foreign exchange reserves.

Question 4.
Explain the procedure to be followed in export trade.
Answer:
As per the Export Control Rules which ae in force in India, an export transaction has to pass through the following stages.
1. Enquiries and Qauotations :

1. The export trade starts with the receipt of enquiry from the buyers. An enquiry is a written request from him seeking information regarding the price and other services.
2. Quotations are a reply to such an enquiry. In quotations, all the details asked for in enquiries are to be furnished. Price, time, method of delivery, method of packing are indicated in them.

2. Orders or Indents :

1. If the buyer is satisfied with regard to the details supplied in quotations, he places an indent. An indent is an offer made by a foreign buyer to buy goods.
2. If that is accepted by the exporter, then it becomes an order. The indent contains all the details in respect of the goods required as well as various other instructions with regard to shipping, packing etc.

3. Securing the Licence :

1. Export of goods from India is controlled under the Import and Export Control Act, Goods covered by controls cannot be exported without an export licence.
2. Certain commodities are kept on the Open General License (OGL) List. The exporters are permitted to export these commodities freely during a definite period. If the goods do not fall under OGL, then he has to apply for an export license to an appropriate authority by paying the prescribed fees.
3. Along with the export licence, a quota permit should also to be obtained by the exporter n the case of commodities which are short supply.

4. Fulfulling Exchange Regulations :
Under the Foreign Exchange Regulations Act, the exporter has to submit a declaration that he will surrender foreign exchange to the Reserve Bank of India within the prescribed time in the prescribed forms and submit them in the customs office and also with the foreign exchange bank.

5. Letter of Credit:

1. before sending the goods, the exporter must be satisfied with the credit worthiness of the importer.
2. In some cases, only a bank reference may be considered sufficient. In the case of new buyers, the deposit of full price in advance may be demanded by the exporter.

6. Shipping Order :

1. After satisfying with the credit worthiness of the importer, the exporter enters into an agreement with a shipping company for hiring space in a ship for sending the goods to the port of the importers choice.
2. The shipping company issues shipping order giving instructions to the captain of the ship to receive on board the vessel, the specified quantity of goods from the exporter.

7. Exchange Rate :

1. The rate at which the currency of one country is exchanged for currency of another country is known as exchange rate.
2. The exporter must fix with his bank the rate at which importer’s payment will be converted into the currrency of the exporting country with a view to avoid losses arising on account of fluctuations in foreign Exchange rates.

8. Packing and Forwarding :

1. Packing should be done in such a way that it ensures safety as well as economy.
2. Special instructions given by the importer, should be followed in this regard.
3. After the goods are packed, distinctive marks showing the name of the importer and the port of destination should be printed on each bundle for the purpose of easy identification.

9. Customs Formalities :
exporter has to observe certain customs formalities; the exporter has to fill the Shipoing Bill in triplicae. The other forms are to be attached to the shipping bill.

10. Mate’s Receipt :
When the goods ae directly handed over to the captain of the ship or his assisant called Mate, he issues a mate’s receipt.

11. Bill of Lading :

1. Tile Bill of Lading is art official receipt of the shipping company acknowledging the receipt Of the goods oh board.
2. It is a document of title as to goods. The importer cannot take delivery of the goods without producing the Bill of Lading.

12. Insurance of Goods :

1. As goods entering into the international trade are exposed to perils of sea, they should be properly insured.
2. This has to be done by purchasing a marine insurance policy form an insurance company. The policy has to be sent to the importer along with Bill of Lading and other documents.

13. Certificate of Origin :

1. This certificate is the declaration testifying the origin of exports.
2. This certificate is issued by an authorized Chamber of Commerce of Trade Council.
3. In order to enable the importer to get the benefit of lower tariff, Certificate of Origin has to be sent to him.

14. Consular Invoice :
To avoid this delay the exporter gets a consular invoice which enables the importer to obtain prompt clearance of goods after they reach the port of destination.

15. Preparation of Invoice :
After all the formalities are compiled with, the exporter hs to prepare an invoice. This irivoice is prepared in triplicate and must be based on the price and terms previously agreed upon.

16. Securing Payment :

1. The final step in the export procedure is to secure payment in settlement of the transaction.
2. The exporter can receive the payment in three different ways :
   A) Drawing a bill on the importer: This bill of exchange is to be sent to the importer along with other documents.
   B) If the exporter wants to receive the amount iinmdiately, he can discount the bill drawn on the importer with his bank.
   C) A Letter of Credit is issued in favour of exporter by the importer’s bank. Strength of this Letter of Credit, the exporter draws a bill and gets the payment from the bank issuing the Letter of Credit.

Question 5.
What procedure and foimalities are adhered in import Trade? Explain.
Answer:
When goods are purchased from a foreign country; and brought down to fhe country of the buyers, it is Import Trade. There is a procedure for importing goods from a foreign country.

1. Procurement of Licence :

1. An importer is not free to import whatever he wants. No goods can be imported into our couiltry withoug vallid licence.
2. An importer can import goods under a general licence or an individual licence. General licence is one which is used for imports from any country whereas individual licence applies to specific countries.
3. For obtaining an import Licence, the importer has to make an application in the prescribed from. A quota certificate is also issued be licensing authority on the basis of applicants past imports.

2. Obtaining Exchange :

1. After obtaining the import Licence Control authorities to release the necessary foreign exchange.
2. The application has to be endorsed by a foreign exchange bank. ‘

3. Indent or Order :

1. The importer places an order for the goods that he requires. This order is called Indent.
2. The indent contains instructions to the exporter with regard to the quality and quantity of goods, the method of forwarding of goods, nature of packing, method of payment, grage I price etc.

4. Letter of Credit:

1. The importer has to prove has creditworthiness to the exporer. For this, he has to send a letter of Credit to the exporter.
2. A letter of Credit is issued by the bank in the importer’s country in favour of the exporter. The bank gives an undertaking that the bills of exchange drawn bn importer by the exporter will be honoured.

5. Procuring Shipping Documents :

1. After the goods are shipped by the exporter, he sends an advice notice to the importer.
2. The exporter also drawsa a bill of exchange on the importer. Other documents such as invoice, insurance policy, bill of loading, consular invoice are attached to the bill of exchange. Therefore, this is called Documentary Bill and it is forwarded to the importer through the exporter’s bank.

6. Clearing of goods :
After taking possession of shipping documents, the importer can take delivery of goods after complying with the following formalities :

1. First the importer has to obtain the Delivery Order from the shipping company.
2. After obtaining the delivery order the importer has to submit three copies of Bill of Entry.
3. When the importer has not received particulares of the goods in order to fill up the bill of entry, he ahs to fill a document called Bill of Sight.
4. Then he has to pay certain dock dues etc., to the Port Trust Office. Then they issue . Port Trust Dues Receipt.

7. Delivery of goods :

1. After examining the bill of entry the custoks office permits the importer to take possession of imported goods.
2. If any duties are levied, the importer is required to pay duty as calculated by the customs authorities.

8. Warehouse :

1. For the convenience of the mporters who do not has own godowns, port authorities maintain large warehouses. They charge a reasonable rent!
2. If the importer is not in immediate need of goods or wants to re – export them or pending payment of the customs of excise duties, he can store the goods in the warehouses. Such a warehouse is described as a “Bonded Warehouse”.
3. In this case, he importer is required to execute a bond, wherin he undertakes to pay the duty on goods on taking delivery.

Question 6.
Explain the features and advantages of EPZ’s.
Answer:
Features : Features of the EPZ’s are as follows :

1. The activities that are carried out in the EPZs are not liable to be licensed.
2. The units setup in the EPZ can select their desired locations by following certain parameters as prescribed by the State Government.
3. The EPZ’s rigorously follow the active export import policy.
4. The units in EPZ are totally custom bonded.
5. The proposals for starting up units in EPZ’s in India are entitled to follow the automatic route for approval as enforced by the State Governments.

Advantages of EPZ’s are as follows :

1. EPZ’s have given a major boost to the economic growth and industrialization of the country.
2. The EPZs are specialized areas in the country where quotas and tariffs are eliminated.
3. EPZ’s are the production centres where large number of workers is employed.
4. The EPZ units involve the import of raw materials and the export of finished goods with a view to increase foreign exchange earnings and exports.
5. Various incentives such as income-tax holidays are introduced and exemptions are provided in respect of VAT, Import duty and also other taxes.
6. 100% Foreign Direct Investment (FDI) are allowed for all the manufacturing activities in EPZ’s.

Question 7.
What is EPZ? Explain the reasons for their setup in India.
Answer:

1. EPZ means export processing zones.
2. EPZ’s are teh zones, which have minimum bureaucratic setup.
3. They are set up in underdeveloped parts of a host counting, aiming to reduce poverty and unemployment and stimulate the area’s economy.

The reasons for EPZ’s setup in India :

1. Ensuring better infrastructural facilities in industrial units that were set up in the EPZ’s.
2. Introducing the privilege of tax holidays.
3. Establishing 100 percent export-oriented system in the EPZ.
4. EPZ’s are entirely devoid of all kinds of duties levies and taxes.
5. The units in EPZ’s follow the automatic route set by the Government of India which offers 100% foreign direct investment in the zone.

Short Answer Type Questions

Question 1.
What is the significance of international trade?
Answer:
Scope : International Trade has a very wide scope.

The following aspecs fall under the scope of International trade :

1. International economics and trade theories.
2. Quantitative techniques for foreign trade.
3. Global business communication and public relatins.
4. Computer application in foreign trade.
5. Insurance and risk management is foreign trade.
6. International business loans.
7. Export and Import finance.
8. Foreign exchange and exchange control.
9. Export incentives.
10. Export pricing.

Importance of International Trade :

1. No country in the world is self sufficient, no country can produce all the goods it requires. This situation where one country is dependent on another country hads created the need for international trade.
2. Nature endows each country with different types of natural resources. Therefore one country has to depend on some other country for natureal resources which result in need of foreign trade.
3. some countries are more suitable placed to produce certain goods in large numbers more economically due to availability of raw material, labour, etc,. In such case foreign trade is needed to export its surplus prodction to other countries.
4. International trade is the back bone of our modem commercial world. International trade promotes increased international understanding, exchange of ideas, cultures, and world peace.
5. International trade has lowers the prices of goods and services all over the world.
6. Globalisation and liberalization policies of the governments across the globe with specific reference to international trade have made it possible.

Thus all the countries in the world have to depend upon another for meeting all their requirements it created the need for international trade.

Question 2.
How internal Trade and international trade differ?
Answer:

Internal trade	International trade
1) Refers to the trade within the country.	1) Refers to trade with other countries.
2) There will be no restrictions.	2) Subjected to many restrictions.
3) Does not involve any exchange of currencies.	3) Involves exchange of currencies.
4) There is scope for operation of demand and supply forces.	4) The scope for operation of demand and supply forces is restricted.
5) Transport costs and risks are less.	5) Transport costs one more and risks are more.
6) The movement of goods depends upon the development of internal transport systems, especially road and rail.	6) The movement of goods takes usually by road, rail, air and water transport.

Question 3.
What are the four important benefits of International Trade.
Answer:
The benefits of international trade are discussed below :

1. It leads to better use of available resources.
2. It reduces wastage of resource.
3. It equalizes the prices of goods throughout the world.
4. It helps countries to sell those goods which they have in surplus.
5. It create healthy competition.
6. It brings about international division of labour and specialization.
7. It increase employment opportunities.
8. It increase foreign exchange reserves.

Question 4.
What is shipping order?
Answer:

1. After satisfying with credit worthiness of the importer, the exporter enters into an agreement with a shipping company for hiring space in a ship for sending the goods to the port of the importers choice.
2. The shipping company issues shipping order giving instructions to the captain of the ship receive on board the vessel, the specified quantity of goods from the exporter.
3. If the entire space of a ship is hired by an exporter, the agreement reached to this effect between the exporter and ship owner is known as charter party agreement. This charter party agreement which binds the captain of the ship to receive on board the vessel, a specified quantity of goods from the exporter.
4. Charter party is an agreement which binds the ship owner to transport the goods to a particular place. The person whose goods are carried under such an agreement is known as charter. Charter party may be a voyage charter party or a time charter party.

Question 5.
What is packing and forwarding in international trade?
Answer:

1. packing is the perparation of a product for storage or transportation.
2. For export the goods, packing should be compact and should be such cargo which occupies minimum space in the ship to save foreight charges.
3. Packing should be done in such a way that it ensures safety as well as economy. Special instructions given by the importer should be followed.
4. After the goods are packed, distinctive marks showing the name of the importer, and part of destination should be printed an each bundle for easy identification.

Question 6.
How licence is procured in import trade?
Answer:
Procurement of licence :

1. An importer can import goods under a general licence or on individual licence.
2. An importer is not free to import whatever he wants. No goods can be imported into our country without valid licence.
3. External licence is which is used for import from any country where as individual licence applies to specific countries.
4. For obtaining an import licence, the importer has to make an application in the prescribed form.
5. A quota certificate also issued by licencing authority on the basis of applicants past imports.

Question 7.
Why EPZ’s are setup?
Answer:

1. EPZ means export processing zones.
2. EPZ’s are teh zones, which have minimum bureaucratic setup.
3. They are set up in underdeveloped parts of a host counting, aiming to reduce poverty and unemployment and stimulate the area’s economy.

The reasons for EPZ’s setup in India :

1. Ensuring better infrastructural facilities in industrial units that were set up in the EPZ’s.
2. Introducing the privilege of tax holidays.
3. Establishing 100 percent export-oriented system in the EPZ.
4. EPZ’s are entirely devoid of all kinds of duties levies and taxes.
5. The units in EPZ’s follow the automatic route set by the Government of India which offers 100% foreign direct investment in the zone.

Question 8.
What is the scope of International trade?
Answer:
The following aspects fall under the scope of international trade.

1. International economic and trade theories.
2. Quantitative techniques for foreign trade.
3. Computer application in foreign trade.
4. Export and import finance.
5. Foreign exchange and exchange control.
6. Export incentives.
7. Export pricing.
8. International business law.

Question 9.
What are the features of EPZ’s in India?
Answer:
Features of the EPZ’s are as follows :

1. The activities that are carried out in the EPZs are not liable to be licensed.
2. The units set up in the EPZ can select their desired locations by following certain parameters as prescribed by the State Government.
3. The EPZ’s rigorously follow the active export import policy.
4. The units in EPZ are totally custom bonded.
5. The proposals for starting up units in EPZ’s in India are entitled to follow the automatic route for approval as enforced by the State Governments.

Very Short Answer Type Questions

Question 1.
Quotations and enquiries.
Answer:

1. The quotations are a reply to such an enquiry. In quotations, all the details asked for in enquiries are to be finished.
2. An enquiry is a written request from him seeking information regarding the price and other service.

Question 2.
Letter of credit.
Answer:

1. It is a letter which is obtained by an exporter to satisfy himself about the credit worthiness of an importer.
2. Letter of credit is issued by the banking imports country in the favers of the exports.

Question 3.
Bill of loading.
Answer:

1. The Bill of Lading is an official receipt of the shipping company acknowledging the receipt of the goods on board.
2. It is a document of title as to goods. The importer cannot take delivery of the goods without producing the Bill of Lading.

Question 4.
Bill of Entry.
Answer:

1. The bill of entry is a statement declaring and describing the goods that are imported.
2. The importer has to submit 3 copies of bill of entry to the customs authories.

Question 5.
Closed Indent.
Answer:

1. The importer places an order for the goods he required, this order is called indent.
2. When the indent specifies the details of goods required, it is called “closed Indent”.

Question 6.
Four stages of EPZ policy in India.
Answer:
Following are the four stages of EPZ policy in India.

1. Initial phase (1964 – 1985)
2. The expansionary phase (1985 – 1991).
3. The consolidating phase (1991 – 2000)
4. The emergence phase (2000 on wards)

Question 7.
Rounded warehouses.
Answer:

1. if the importer is not in immediate need of goods or wants to re – export them or pending payment of the customs or excise duties, he can store the goods in the warehouse called “Bonded warehouse”.
2. The importer is required to execute a bond, where in he undertakes to pay the duty on goods an taking delivery.

Question 8.
Exchange rate.
Answer:

1. The rate at which the currency of one country is exchanged for currency of another country is known as exchange rate.
2. The exporter must fix with his bank the rate at which importer’s payment will be converted into the currrency of the exporting country with a view to avoid losses arising on account of fluctuations in foreign Exchange rates.

Question 9.
Certificate or origin.
Answer:

1. This certificate is the declaration testifying the origin of exports.
2. This certificate is issued by an authorized Chamber of Commerce of Trade Council.
3. In order to enable the importer to get the benefit of lower tariff, Certificate of Origin has to be sent to him.

Question 10.
Consualr invoice.
Answer:
To avoid this delay the exporter gets a consular invoice which enables the importer to obtain prompt clearance of goods after they reach the port of destination.

Question 11.
Warehouse.
Answer:

1. Ware house refers to a facility created for the storage of goods.
2. For the convenience of the importers who do not have own godowns, the port authorities maintain large warehouses. They charege reasonable rent.

Question 12.
Therory of Comparative cost advantage.
Answer:
The theory that explains the basis of foreign trade is called “Theory of comparative cost advantage”. The resources like land, raw materials, minerals, water, labour skills determine the capacity of a country to produce. Country which has more resources, their cost will be less than the other countries. The country has cost advantage in production of those goods which use more of these resources. Therefore country can be able to export these goods and import those goods which will cost more to produce.