NCERT Solutions Class 11 Business Studies Chapter 11 International Business
NCERT Solutions Class 11 Business Studies Chapter 11 International Business: National Council of Educational Research and Training (NCERT) Class 11 Business Studies Chapter 11 Solutions – International Business.
Short answer questions:
(1) Differentiate between internal trade and international business.
Ans: The difference between internal trade and international business are as follows:
(i) Internal trade is subjected to rules, taxation system of a single country whereas international business is subjected to rules and regulations of multiple countries.
(ii) Domestic markets are relatively more homogenous in nature whereas international markets lack homogeneity due to differences in language preferences, customs etc across markets.
(2) Discuss any three advantages of international business.
Ans: The advantages of international business are as follows:
(i) Earning of foreign exchange: International business allows the country to earn foreign exchange which can be used for meeting its important expenses.
(ii) More efficient use of resources: International business operates on the principle of 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.
(iii) Improving growth prospects and employment potentials: Producing solely for the purpose of domestic consumption severely restricts a country’s prospective for growth and employment.
(3) What is the major reason underlying trade between nations?
Ans: Due to unequal distribution of natural resources among countries and differences in the productivity level of various countries, it is not possible for a particular country to produce equally well or cheaply all that it requires for consumption and hence there is a need for international trade.
(4) Why is it said that licensing is an easier way to expand globally?
Ans: Licensing helps the exporting or the importing firm in getting financial assistance from commercial banks and other financial institutions after it gets itself registered with ECGC and avail the protection from political and commercial risk incase of overseas payment.
(5) Differentiate between contract manufacturing and setting up wholly owned production subsidiary abroad.
Ans: Contract manufacturing refers to a type of international business where a firm enters into a contract with one or a few local manufactures in foreign countries to get certain compounds or goods produced as per its specifications whereas in wholly owned subsidiaries, the parent company acquires full control over their overseas operations and acquires the foreign company by making 100% investment in their equity capital.
(6) Discuss the formalities involves in getting an export license.
Ans: The formalities involved in getting an export license are as follows:
(i) Opening a bank account in any bank authorised by RBI.
(ii) Obtaining Import Export code (ICE) member from directorate general foreign trade (DGFT) or regional import export licensing authority.
(iii) Registering with appropriate export promotion council.
(iv) Registering with export credit and guarantee corporation (ECGC) in order to safeguard against risk of non-payments.
(7) Why is it necessary to get registered with an export promotion council?
Ans: It is obligatory for every exporter to get registered with appropriate export promotion council like engineering export promotion council (EEPC) etc in order to obtain a registration sum membership certificate (RCMC) for availing the benefits given by the government to the exporting firms.
(8) Why is it necessary for an export firm to go in for pre-shipment inspection?
Ans: It is necessary for an export firm to go for pre-shipment inspection because it is compulsory to check the quality of goods produced for the purpose o export under the quality control and inspection act. The government has prescribed certain quality standards as per the safety of the people and every export firm has to comply to those standards.
(9) What is bill of lading? How does it differ from bill of entry?
Ans: Bill of lading is a document where in 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.
A bill of lading differ from a bill of entry in a way as a bill of lading is a document prepared and signal by master of ship whereas bill of entry is prepared by the importer when the goods arrives at the port.
(10) Explain the meaning of mate’s receipt.
Ans: A mate’s receipt is a receipt issued by the commanding officer of the ship when the cargo is loaded on board and contains information like – name of the vessel, birth, date of shipment, description of packages etc.
(11) What is a letter of credit? Why does an exporter need this documents?
Ans: A letter of credit is a guarantee issued by the importer’s bank that it will honour upto a certain amount the payment of export bills to the bank of the exporter.
An exporter needs a letter of credit because it is the most appropriate and secure method of payment adopted to settle international transactions.
(12) Discuss the process involved in securing payment for exports.
Ans: After customs clearance and payment of dock charges to the port authorities and fright charges to the shipping company, goods are loaded on the ship. The captain of the ship issues a mates receipt and after receiving freight charges and bill of lading, the goods are dispatched. The exporter now prepares an invoice and sends necessary documents like – bill of lading, insurance policy, certificate of origin etc to the importer through his/her bank to release a certificate of payment. This document certifies that the export transaction is over and payment has been received.
Long Answer Questions:
(1) “International business is more than international Trade”. Comment.
Ans: International business is broader than international trade as it not only includes international trade i.e. export and import of goods and services, but also a wide variety of other ways in which the firms operate internationally. It includes the following aspects of conducting business internationally.
(i) Merchandising exports and imports: It means sending tangible goods abroad
i.e. – merchandising exports and bringing tangible goods from a foreign country.
i.e. – merchandising imports.
(ii) Service exports and imports: This involve trade of intangibles. A wide variety of services are traded internationally like – tourism, travel, restaurants, transportation, professional services etc.
(iii) Licensing and franchising: This involves allowing another party in a foreign country to produce and sell goods under one’s trademark, patents or copyrights in lieu of some fee.
(iv) Foreign investment: It involves investment of funds abroad in exchange for financial return.
(2) What benefits do firms derive by entering to international business?
Ans: The benefits of international business to the firms are as follows:
(i) Higher profit: International business is profitable than domestic business because a firm can earn high profit by selling the products at a higher prices in international market.
(ii) Increased capacity utilization: By planning overseas expansion an procuring orders from foreign customers, a firm can think of making use of their surplus production capacities and improve profitability of their operation.
(iii) Improved business vision: The vision become international comes from the urge to grow, the need to become more competitive, need to diversity and gain the advantages of internationalisation.
(3) In what ways exporting a better way of entering international markets than setting up wholly owned subsidiaries abroad?
Ans: Exporting is a better way of entering international markets than setting up wholly owned subsidiaries abroad in the following ways:
(i) Wholly owned subsidiaries involves setting up a new firm altogether to start operation in a foreign country which involves huge investment and cost or expenses whereas exporting is a considerably inexpensive method of carrying out business internationally.
(ii) Exporting is the easiest way of gaining entry into international market as it is less complex to conduct business than setting up wholly owned subsidiaries.
(iii) The risk involved in terms of investment is much less in case of exporting rather than wholly owned subsidiaries.
(4) Rekh garments has received an order to export 2000 men’s trousers to swift imports led located in Australia. Discuss the procedure that Rekha Garments would need to go through for executing the export order Rekha Garments would need to go through for executing the export order.
Ans: The export procedure is discussed as below:
(i) Receipt of enquiry and sending quotations and receipt of order: This involves receiving an enquiry from the prospective buyers and placing an order by such customers.
(ii) Assessing importer’s creditworthiness and security guarantee for payment and obtaining export license: Before manufacturing the goods the exporter enquiries about the creditworthiness of the buyers in order to ensure about safety of payment and acquires the export license before exporting the goods by obtaining IEC number, RCMC and registering with ECGC.
(iii) Obtaining pre-shipment finance and production of goods: After receiving letter of credit, the exporter approaches his/her banker to obtain pre-shipment finance regarding packaging of goods, purchasing raw materials etc. After sending the confirmation to the importer, the exporter starts manufacturing the goods according to specifications.
(iv) Pre-shipment inspection and excise clearance: Before the goods dispatched, it is mandatory for the exporters to check the quality of the goods and then the exporter approaches to the excise commissioner to get excise clearance.
(v) Obtaining certificate of origin and custom clearance: The certificate of origin is a proof that goods are actually being manufactured from the country where it is exported from and this certificate can be obtained from the trade consulate located in the exporter’s country.
For obtaining custom clearance, the exporter prepares the shipping bills submits the documents like – letter of credit, certificate of origin, certification inspection. Commercial invoice etc.
(vi) Obtaining mate’s receipt and securing payment: After receiving custom clearance, goods are loaded on the ship and the captain issues a mate’s receipt. The exporter goes to shipping office and deposits the mate’s receipt and receives the bill of lading. After this invoice of dispatched goods are prepared and the importer accepts a bill of exchange and confirms the payment.
(5) Your firm is planning to import textile machinery from Canada. Describe the procedure involved in importing.
Ans: The procedure for import are as follows:
(i) Trade enquiry and receiving import license: The importer sends a trade enquiry form to get information regarding price, quantity, quality of the product that the exporter can supply. After this the importer supplies and gets itself registered with directorate general foreign trade to obtain IEC number and import license.
(ii) Obtaining foreign exchange and placing an order: In order to receive foreign exchange, an importer has to give an application to a bank authorised by RBI to issue foreign exchange and also submit a copy of import license. After receiving the foreign exchange. The importer places an import order to supply the products.
(iii) Obtaining letter of credit and arranging for finance: This is issued by the importer’s bank in favour of the exporter and the bank undertakes guarantee for making payment on behalf of the importer. After this the importer should make the arrangement for payment.
(iv) Receipt of shipment advice and retirement of import documents: After loading the goods, the exporter dispatches the shipment advice to the importer that contains information regarding shipment. After shipment of goods, the exporter submit various documents to banker like – letter of credit, bill of lading etc.
(v) Arrival of goods and custom clearance: After the arrival of the goods, the dock authorities informs the importer about it and importer prepares the bill of entry containing details about imported goods. After this, the custom officer examines the bill of entry and assess about the custom duty to be paid by the importer. After examination of the goods by dock superintendent the port manager accepts the payment custom duty and issues a release order for the goods.
(6) How various organisations that have been set up in the country by for promoting country’s foreign trade.
Ans: organisations set up by government for the promotion of foreign trade are :
(i) Indian Institute foreign trade (IIFT): It was set up in 1963 by government India as an autonomous body registered under the societies registration Act with the prime objective of professionalizing the country’s foreign trade management.
(ii) Indian Institute of packaging: This was established joining by the ministry of commerce and government of India in 1966, as a training-cum-research institute pertaining to packaging and testing.
(iii) Export inspection council (EIC): It was set up by government of India under sec 3 of the export quality control and inspection act 1963. The objective of this organisation is to develop export trade through quality control and pre-shipment inspection.
(iv) Indian Trade promotion organisation (ITPO): It was setup in 1992 on 1st January under the companies Act 1956 by the ministry of commerce. It organises trade fairs and exhibition within the country and outside country.
(7) What is IMF? Discuss its various objectives and functions.
Ans: IMF stands for international monetary fund and was set up in 1945 with its headquarters located in Washington DC. It facilities the system of international payments and adjustments in exchange rates among national currencies.
The objectives of IMF are as follows:
(i) To Promote international monetary co-operation through a permanent institution.
(ii) To promote exchange stability with a view to maintain orderly exchange arrangements among member countries.
(iii) 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.
The functions of IMF are as follows:
(i) If acts as a short-term credit institution.
(ii) Providing machinery for the orderly adjustment of exchange rate.
(iii) Acting as a lending institution of foreign currency and current transaction.
(8) Write a detail vote o features structure, objectives and functioning of WTO.
Ans: World trade organisation (WTO) came into existence from 1st Jan 1995. The headquarters of WTO is situated at Geneva, Switzerland.
The features of WTO are as follows:
(i) WTO is a permanent organisation created by an international treaty ratified by the governments and legislatures of member states.
(ii) It is a principal international body concerned with solving trade problems between countries and providing a forum for multilateral trade negotiations.
The structure of WTO area follows:
(i) GATT (General agreement for Tariffs and trade) was transformed into WTO from Jan 1 1995.
The objectives of WTO are as follows:
(i) The basic objective of WTO is raising standard of living and incomes, ensuring full employment, expanding production and trade.
(ii) To ensure reduction of tariffs and other trade barriers imposed by different countries.
(iii) To facilitate the optimal use of the world’s resources for sustainable development.
The functions of WTO are as follows:
(i) Laying down a commonly accepted code of conduct with a view to reduce trade barriers.
(ii) Holding consultations with the IMF and the IBRD so as to bring better understanding and cooperation in global economic policy making.
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