NCERT Solutions for Class 11 Business Studies Chapter 11 - International Business
Short Answer Questions:
1. Differentiate between international trade and international business.
|Basis||International Trade||International Business|
|Meaning||It is the exchange of goods, services, and capital across an international border.||Business transactions that takes place between two or more countries is known as international business.|
2. Discuss any three advantages of international business.
- International business assists in the development of both exporting and importing countries.
- It gives a platform to the countries and producers to sell their goods to international buyers. In this way, it improves employment opportunities for the people of those countries.
- International business also helps in earning foreign exchange, which can be utilised in importing petroleum, technology, and capital goods.
3. What is the major reason underlying trade between nations?
- Having an abundance of a resource, a country becomes an expert in that specific resource which can be produced in the vicinity of the available resources.
- Every country has different natural resources, which are scarce and limited. Trading aids in making such resources available to all countries.
- The labour productivity and production cost will vary among nations, so it is easier to export items produced in surplus and import items that a country won't be able to generate.
4. Differentiate between contract manufacturing and setting up wholly owned production subsidiary abroad.
|Basis||Contract manufacturing||Wholly owned production subsidiary|
|Meaning||In this system, a company hires a local producer in a foreign country to produce products contractually as per his requirements.||In this system, the company buys 100% equity in a foreign company and gets full authority over its operations.|
|Investment||No investment is required.||The investment required is high as the company buys the whole company.|
|Level of Control||Limited control||Full control|
5. Why is it necessary for an export firm to go in for a pre-shipment inspection?
- The government has made it compulsory to check for export items on the basis of the Export Quality Control and Inspection Act, 1963 and assigned some agencies to carry out the work.
- It is necessary to acquire an inspection certificate from the Export Inspection Agency for the goods exported.
- Pre-shipment inspection ensures that the goods being shipped meet the quality standards of the destination country. This can help prevent costly returns or rejections of the goods.
6. What is a bill of lading? How does it differ from the bill of entry?
Ans. A bill of lading (B/L) is a legal document used in international trade that serves as evidence of the contract of carriage between the shipper (exporter) and the carrier (shipping company of freight forwarder). The bill of lading contains important information about the shipment, such as the type, quantity, and destination of the goods being shipped, as well as the names and addresses of the shipper etc.
On the other hand, a bill of entry is a customs document that is used by an importer to declare the details of the goods being imported into a country. It is a legal document that contains information about the goods being imported, such as their value, quantity, country of origin, and the name of the exporter.
7. What is a letter of credit? Why does an exporter need this document?
Ans. A letter of credit is issued by the bank of the importer. It is a guarantee to make payment of export bills to the bank of the exporter up to a particular amount. The exporter needs this document to ensure that the payment is protected and is a safe way to settle international transactions.
8. Discuss the process involved in securing payment for exports.
- After the shipment is made, the exporter tells the importer about the shipment.
- The exporter sends essential documents like an insurance policy, bill of lading, letter of credit, and invoice copies. The importer requires these documents to claim the goods and for customs clearance.
- These documents are sent through the bank of the exporter, along with an instruction that documents should be delivered only when the importer accepts the bill of exchange.
- The exporter can get immediate payment from his/her bank on the submission of documents by signing a letter of indemnity
- Once the money is received, the exporter gets a certificate of payment from the bank. It includes all necessary documents.
Long Answer Questions:
1. "International business is more than international trade". Comment.
Ans. International trade is fundamental aspect of international business, encompassing the import and export of goods. However, the scope of international business extends far beyond mere trade. It encompasses various other forms of international service exchange, such as travel and tourism, transportation, communication, banking, warehousing, distribution, and advertising. Moreover, international business includes activities related to foreign investments and the production of goods and services abroad.
In pursuit of exploring foreign markets and capitalising on cost advantages, multinational companies are increasingly investing in foreign countries and establishing production facilities there. These endeavors are integral to international business. In summary, international business is a broader concept the encompasses both the trade and production of goods and services across borders. While international trade primarily involves the exportation of goods, international business encompasses a range of additional modes such as licensing, franchising, contract manufacturing, joint ventures, and the establishment of wholly owned subsidiaries, in addition on exporting.
2. What benefits do firms derive by entering into international business?
By expanding to global markets, a business can utilise its full capacity in producing products and earning profits with the advantage of economies of scale.
Tap into long-term progress by expanding into international markets.
International business helps a country to earn foreign which it can later use for meeting its imports of capital goods, technology, petroleum products and fertilizers and a host of other consumer products which otherwise might not be available domestically.
Companies can beat the high local competition by exploring global markets.
Better growth prospects for products that are saturated in the local market.
3. In what ways is exporting a better way of entering into international markets than setting up wholly owned subsidiaries abroad?
Exporting is less risky as no investment in equity is required. In contrast, in the case of subsidiaries, 100% equity is born by the firm. Therefore, it is responsible for all the damages and costs in case of failure.
It requires less investment as compared to subsidiaries.
Exporting has a low er political risk than wholly owned subsidiaries.
Managing an export enterprise is comparatively easy than managing wholly-owned subsidiaries.
4. 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.
Ans. The steps in the procedure of export are:
- Rekha must make inquiries about the creditworthiness of the importer. In this case, Swift Imports Limited is an importer. She should also ask for a letter of credit from the bank of the importer.
- After the check, she needs to obtain an IEC number to get an export license.
- After that, she needs pre-shipment finance from the bank of the importer to obtain raw materials for packaging and production.
- After receiving the pre-shipment finance, she should start manufacturing garments as per the demands of an importer.
- She also needs to obtain a certificate of inspection from an export inspection agency.
- Also, obtain excise clearance from the Excise commissioner and a certificate of origin.
- Now, she will apply to a shipping company to get space on the ship. All essential information such as destination, types of goods, shipment date, number of boxes, and port name are mentioned.
- Products get correctly packed and labelled with all the necessary information.
- Obtain customs clearance, and goods are loaded into the vessel and issued a mate's receipt.
- On receipt of freight, issuing of the bill of lading.
- After shipping items, the exporter makes an invoice which contains the goods sent and the payment paid by the importer.
- The exporter sends essential documents to the banker that must be given to the importer after accepting the bill of exchange.
- On receiving it, the importer will ask his bank to make a payment to the exporter's bank account.
- The exporter receives a certificate of payment, producing the essential documents and bill of exchange.
5. Your firm is planning to import textile machinery from Canada. Describe the procedure involved in importing.
The importer should get an IEC number by applying to the Regional import-export licensing authority. Then, it is required to complete the import procedure.
An importer needs to obtain (RCMC) Registration Cum Membership Certificate, which is issued by Import Promotional Council and Import Development Authority
An importer needs to issue a letter of credit in favour of the exporter from the bank and instructs about documents that need to be collected from the exporter before making the payment.
Exporter ships products as per the demands of an importer. On reaching the importer's country, the captain of the ship notifies the dock officer about imported items and submits this to obtain a custom clearance.
The custom officer assesses the bill of entry and gives it to the appraiser officer, who confirms the details. After all, the bill is sent to the importer to collect customs duty.
6. What is IMF? Discuss its various objectives and functions.
Ans. IMF was established in 1945 and headquartered in Washington DC. The IMF aimed to set up an orderly monetary system. Additionally, it intends to facilitate a system of global payments and check adjustments in exchange rates.
- Promoting income growth and employment and promoting balanced growth of international trade.
- Encouraging international monetary cooperation among member nations.
- Assisting international payments among member nations.
- Fostering exchange stability to sustain orderly exchange arrangements among member nations.
- Provide exchange rate stability.
- Offering short-term credit to member nations.
- Become a leading association of foreign currency.
- To define the value of a country's currency and modify it to create an orderly arrangement among member nations.
7. Write a detailed note on the features, structure, objectives and functioning of WTO.
Ans.WTO was established in the year 1995. It was a successor to the General Agreement on Tariffs and Trade. It does business with the trading of goods and services and in IPRs.
Features of WTO:
- Decisions of the World Trade Organisation taken by member countries are based on consensus.
- Trade of goods and services.
Objectives of WTO
- Facilitates sustainable development by using optimum resources.
- Decreasing non-tariff and tariff barriers imposed on the nation.
- Improve the living standard for members of foreign nations.
Functions of WTO:
- Forming a common code of conduct to eradicate trade discrimination.
- Offers an environment where member nations are encouraged to discuss their problems.
- Act as a dispute settlement body.
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