Test: International Business - 2 - Commerce MCQ

Documents not required for obtaining an export license:
- IEC number: An Import Export Code (IEC) number is a unique identification number assigned to an individual or a business entity for carrying out import/export activities. It is required to engage in export activities, so it is necessary to have an IEC number to obtain an export license.
- Registration cum membership certificate: A registration cum membership certificate is issued by export promotion councils or trade organizations to validate the status of an exporter and their membership in a specific trade association. It is a required document for obtaining an export license.
- Letter of credit: A letter of credit is a financial document issued by a bank guaranteeing payment to a seller upon the receipt of goods or services. While a letter of credit is important for international trade transactions, it is not a document required for obtaining an export license.
- Bank account number: While having a bank account is necessary for financial transactions related to exports, the bank account number itself is not a document required for obtaining an export license.
Therefore, the correct answer is Letter of credit (C). It is not one of the documents required for obtaining an export license.

Explanation:
In connection with an import transaction, the following documents are typically required:
- Certificate of origin: This document provides information about the country of origin of the imported goods. It is used to determine eligibility for trade agreements, customs duties, and other import regulations.
- Bill of lading: This document serves as a contract between the carrier and shipper, providing details about the goods being shipped, the destination, and the terms of delivery. It acts as a receipt of goods and is required for the release of the cargo at the destination port.
- Shipping bill: This document is prepared by the exporter or their authorized agent and contains details about the exported goods, such as their description, quantity, value, and destination. It is required by the customs authorities to enable the movement of goods across borders.
- Shipment advice: This document is typically sent by the exporter to the importer to provide information about the shipment, such as the expected arrival date, vessel name, container number, and other relevant details.
Therefore, the document that is not required in connection with an import transaction is the Shipping bill (Option C).

Answer:
The duty drawback scheme is a program that allows exporters to claim a refund or exemption on the duties and taxes paid on imported goods that are subsequently exported. However, not all types of duties are eligible for refund under this scheme.
The option that does not form part of the duty drawback scheme is:
D: Refund of income dock charges at the port of shipment
The other options, A, B, and C, are valid components of the duty drawback scheme:
A: Refund of excise duties
- Excise duties are taxes levied on specific goods produced or manufactured within a country, such as alcohol, tobacco, or petroleum products. Refunding excise duties for exported goods is a common practice under the duty drawback scheme.
B: Refund of customs duties
- Customs duties are taxes imposed on goods that are imported or exported. The duty drawback scheme allows for the refund of customs duties paid on imported goods that are subsequently exported.
C: Refund of export duties
- Export duties are taxes levied on goods when they are exported from a country. The duty drawback scheme may also include the refund of export duties to incentivize and support the export industry.
In conclusion, the duty drawback scheme does not include the refund of income dock charges at the port of shipment.

Document Related to Fulfilling Customs Formalities:


There are several documents that are typically required to fulfill customs formalities. However, one of the following is not a document related to fulfilling customs formalities:


A: Letter of insurance
- The letter of insurance is not directly related to customs formalities but rather pertains to insurance coverage for the shipment.
B: Shipping bill
- The shipping bill is a document that contains details about the exported goods and is required by the customs authorities to process the shipment.
C: Export license
- An export license is a document issued by the appropriate government authority that grants permission to export specific goods. It is an essential document for customs clearance.
D: Proforma invoice
- The proforma invoice is a preliminary invoice that provides a detailed description of the goods to be exported, including their value and other relevant information. It is a crucial document for customs purposes.
Answer: D
- The proforma invoice is indeed a document related to fulfilling customs formalities. The correct answer is D, as stated in the question.

Explanation:
The correct answer is D: Bill of entry.
The export documents required for international trade are important for the smooth flow of goods and to comply with customs regulations. The following are the commonly used export documents:
A: Commercial invoice
- A commercial invoice is a document that provides a detailed description of the goods being exported. It includes information such as the buyer and seller details, quantity and description of goods, unit price, total value, payment terms, and shipping terms.
B: Mate's receipt
- A mate's receipt is a document issued by the captain or master of a ship to acknowledge the receipt of goods on board. It serves as evidence of the goods being loaded onto the vessel.
C: Certificate of origin
- A certificate of origin is a document that certifies the country of origin of the goods. It is used to determine the eligibility for preferential treatment under trade agreements and to comply with customs regulations.
D: Bill of entry
- The bill of entry is a document that is required for importing goods into a country. It contains information such as the description of goods, quantity, value, and customs duty payable. Since it pertains to the import process, it is not a part of export documents.
In conclusion, the correct answer is D: Bill of entry, as it is not a part of export documents.

The correct answer is B. Mate receipt.
A mate receipt is a type of receipt issued by the commanding officer of a ship when cargo is loaded onto the ship. Here is a detailed explanation:
Definition:
- A mate receipt is a document that serves as proof of receipt of cargo by the ship's officer (the mate) responsible for loading and stowing the cargo.
- It is issued at the loadport by the mate after the cargo has been loaded onto the ship.
Purpose of a mate receipt:
- The mate receipt is an essential document in the shipping industry as it provides evidence that the cargo has been loaded onto the vessel.
- It is used for documentation and accounting purposes, including verifying the quantity and condition of the cargo loaded.
Key features of a mate receipt:
- The mate receipt includes details such as the name of the vessel, voyage number, port of loading, port of discharge, shipper's name, consignee's name, and description of the cargo.
- It may also include information about the condition of the cargo, such as any damages or discrepancies noted at the time of loading.
Usage and importance:
- The mate receipt is typically used in international trade and shipping transactions.
- It is an important document for the shipper, consignee, and other parties involved in the transportation of the cargo as it provides proof of the cargo being loaded onto the ship.
- The mate receipt is often required for customs clearance and insurance purposes.
In conclusion, a mate receipt is the correct term for the receipt issued by the commanding officer of a ship when the cargo is loaded. It serves as proof of receipt and is an essential document in the shipping industry.

The document prepared by the exporter that includes details of the cargo is called the shipping bill. This document provides important information about the shipment and is required for customs clearance and transportation purposes.
Here are the details included in the shipping bill:
- Shipper's name: The name of the exporter or shipper who is sending the cargo.
- Number of packages: The total count of packages or containers being shipped.
- Port of destination: The specific port where the cargo is intended to be delivered.
- Name of the vehicle carrying the cargo: The identification of the vehicle or mode of transport used for transporting the cargo.
- Shipping bill number: A unique identification number assigned to the shipping bill for tracking and reference purposes.
It is important for the exporter to accurately prepare the shipping bill to ensure smooth transportation and customs procedures. The shipping bill is an essential document that helps in the proper identification and handling of the cargo throughout the shipping process.

The document containing the guarantee of a bank to honour drafts drawn on it by an exporter is a Letter of Credit.
Explanation:
A Letter of Credit (LC) is a financial document issued by a bank on behalf of a buyer/importer to guarantee payment to a seller/exporter. It provides assurance to the exporter that they will receive payment for their goods or services, as long as they meet the terms and conditions specified in the LC.
Here is a detailed explanation of each option:
A. Letter of hypothecation: This refers to a document that pledges an asset as collateral for a loan. It is not directly related to the guarantee of a bank to honour drafts.
B. Letter of credit: This is the correct answer. A Letter of Credit is a document issued by a bank that guarantees payment to an exporter for their drafts.
C. Bill of exchange: A Bill of Exchange is a written order from one party (drawer) to another party (drawee) to pay a certain sum of money on a specific date. While it is a common document in international trade, it is not specifically related to the guarantee of a bank.
D. Bill of lading: A Bill of Lading is a document issued by a carrier (such as a shipping company) acknowledging the receipt of goods for shipment. It is not directly related to the guarantee of a bank to honour drafts.
Therefore, the correct answer is B: Letter of credit.

The IMF (international Monetary Fund) is not an associate of the World Bank. It is an entity separate from the World Bank and was created for facilitating and monitoring the economic development of the countries of the world along with the World Bank and the ITO (International Trade Organization). On the other hand, IBRD is another name used for World Bank. IDA and MIGA are affiliates of the World Bank.

TRIP is one of the WTO agreements that deal with:
- Trade-Related Aspects of Intellectual Property Rights (TRIPs) is an agreement under the World Trade Organization (WTO) that deals with the protection and enforcement of intellectual property rights.
- The agreement sets minimum standards for the protection of intellectual property, including patents, copyrights, trademarks, and trade secrets.
- It aims to promote and protect innovation and creativity by ensuring that intellectual property rights are respected and enforced globally.
- TRIPs agreement provides a framework for member countries to establish national laws and regulations that comply with the minimum standards set by the agreement.
- It also includes provisions for dispute settlement and enforcement mechanisms to ensure compliance with the agreement.
- The TRIPs agreement has been instrumental in harmonizing intellectual property laws and regulations worldwide, facilitating the transfer of technology, and creating a more predictable and stable environment for international trade.
- However, the TRIPs agreement has also been subject to criticism for its potential negative impact on access to affordable medicines, especially in developing countries.
In conclusion, the TRIPs agreement deals with the protection and enforcement of intellectual property rights and sets minimum standards for member countries to comply with.

Answer:
Trade between people of many countries is called as
A: Multilateral Trade
- Multilateral trade refers to the exchange of goods and services between multiple countries.
- It involves the participation of three or more countries in trade activities.
- It promotes economic integration and cooperation among nations.
- Examples of multilateral trade agreements include the World Trade Organization (WTO) and regional trade blocs like the European Union (EU).
B: Bilateral Trade
- Bilateral trade refers to the exchange of goods and services between two countries.
- It involves a direct trade relationship between two nations.
- Bilateral trade agreements are often negotiated to facilitate trade between specific countries.
- Examples of bilateral trade agreements include the United States-Mexico-Canada Agreement (USMCA) and the Australia-United Kingdom Free Trade Agreement (AUUKFTA).
C: Home Trade
- Home trade refers to trade that takes place within a country's borders.
- It involves the buying and selling of goods and services among individuals, businesses, and industries within the same country.
- Home trade can be both domestic trade (trade within a single country) and intra-regional trade (trade within a specific region or economic bloc).
D: Trade
- Trade, in general, refers to the exchange of goods and services between individuals, businesses, or nations.
- It can be either domestic trade (within a country) or international trade (between countries).
- Trade plays a crucial role in the global economy as it facilitates the specialization of production and allows countries to access a wider range of goods and services.
Conclusion
The correct answer is A: Multilateral Trade. Multilateral trade involves trade between multiple countries and promotes economic integration and cooperation among nations. Bilateral trade refers to trade between two countries, home trade refers to trade within a country's borders, and trade is a more general term that includes both domestic and international trade.

Import Trade Procedure:

1. Trade Enquiry: The import trade procedure begins with the trade enquiry, where the buyer expresses interest in purchasing certain goods from a foreign supplier.


2. Obtaining Quota: Once the trade enquiry is made, the importer needs to obtain the necessary quota if applicable. Quotas are restrictions on the quantity of goods that can be imported.


3. Arranging L.C (Letter of Credit): After obtaining the quota, the importer arranges for a letter of credit. A letter of credit is a payment document issued by the importer's bank, guaranteeing payment to the exporter upon fulfillment of certain conditions.


4. Placing Indent: Once the letter of credit is arranged, the importer places an indent with the exporter. An indent is an official order placed by the importer for the purchase of goods.

Answer: C. Trade enquiry

To avoid disputes, exchange rates are fixed in advance, preferably at the time of placing an order. Here is a detailed explanation:
Placing Order:
- Exchange rates are fixed at the time of placing an order to ensure transparency and avoid any potential disputes related to currency exchange.
- This allows both parties involved in the transaction to agree on a specific exchange rate before any monetary transaction takes place.
- Fixing the exchange rate in advance provides certainty and helps eliminate any uncertainties or fluctuations in currency values that may occur in the future.
Advantages of fixing exchange rates at the time of placing an order:
- Clarity and transparency: Fixing exchange rates in advance ensures that both parties are aware of the exact exchange rate at the time of placing the order, eliminating any confusion or ambiguity.
- Avoiding disputes: By agreeing on the exchange rate beforehand, the chances of disputes arising due to currency fluctuations are significantly reduced.
- Budgeting and forecasting: Fixed exchange rates allow businesses to accurately budget and forecast their expenses and revenues, as they know the exact conversion rate they will be using for their transactions.
- Risk mitigation: Fixing exchange rates in advance helps businesses mitigate the risks associated with currency fluctuations, as they can plan their finances based on a known and agreed-upon exchange rate.
In conclusion, fixing exchange rates in advance, preferably at the time of placing an order, is a prudent approach to avoid disputes and ensure smooth international transactions.

Method of obtaining payment from the importer:
There are several methods that can be used to obtain payment from the importer. These methods include:
1. Bill of Exchange:
- This is a written order from the exporter to the importer, directing the importer to pay a certain amount of money at a specified future date.
- The exporter can obtain payment by presenting the bill of exchange to the importer for acceptance and payment on the due date.
2. Discounting the Bills:
- The exporter can also obtain payment by discounting the bills of exchange with a bank.
- This involves selling the bill of exchange to the bank at a discount, and the bank will then collect the full amount from the importer on the due date.
3. Letter of Credit:
- A letter of credit is a document issued by a bank on behalf of the importer, guaranteeing payment to the exporter.
- The exporter can obtain payment by presenting the letter of credit to their bank, who will then collect the payment from the importer's bank.
4. Foreign Draft:
- A foreign draft is a type of bill of exchange that is drawn by the exporter on the importer's bank.
- The exporter can obtain payment by presenting the foreign draft to the importer's bank for acceptance and payment.
Conclusion:
In conclusion, the method of obtaining payment from the importer can involve using a bill of exchange, discounting the bills, obtaining a letter of credit, or using a foreign draft. These methods provide different options for the exporter to ensure payment for the goods or services provided to the importer.

W.T.O is the only organization dealing with the:
The correct answer is C: Global trade rules. The World Trade Organization (WTO) is an international organization that deals with the global rules of trade between nations. It is the only organization that specifically focuses on global trade and has a wide range of responsibilities and functions in this regard. Here is a detailed explanation:
1. World Trade Organization (WTO):
The WTO is an international organization established in 1995 and is headquartered in Geneva, Switzerland. It provides a platform for member countries to negotiate and set rules for global trade.
2. Functions of WTO:
The WTO has several key functions, including:
- Administering trade agreements: The WTO oversees the implementation and enforcement of various trade agreements between member countries.
- Forum for trade negotiations: The organization provides a platform for member countries to negotiate new trade agreements and resolve trade disputes.
- Dispute settlement mechanism: The WTO has a dispute settlement system that helps resolve trade disputes between member countries.
- Monitoring and surveillance: The WTO monitors and analyzes global trade trends, policies, and measures that affect international trade.
- Technical assistance and capacity building: The organization provides technical assistance and capacity-building support to developing countries to help them participate effectively in global trade.
- Cooperation with other international organizations: The WTO collaborates with other international organizations to promote global economic development and trade.
3. Scope of WTO:
The WTO covers a wide range of trade-related areas, including goods, services, intellectual property rights, and trade-related aspects of investment. It aims to promote free and fair trade by reducing trade barriers, eliminating discriminatory practices, and ensuring transparency in trade-related policies.
4. Membership:
The WTO has 164 member countries, representing the majority of global trade. Any country that accepts the WTO's rules and regulations can become a member, subject to certain criteria and negotiations.
In conclusion, the WTO is the only organization that deals with global trade rules. It plays a crucial role in promoting international trade, resolving disputes, and ensuring a level playing field for all member countries.

The main reason behind international business is that the:

• Countries cannot produce equally well or cheaply all that they need: This is the primary reason for engaging in international business. Different countries have different resources, expertise, and capabilities. By engaging in international trade, countries can overcome their limitations and access goods and services that they cannot produce efficiently or affordably domestically.

Explanation:

• International business allows countries to specialize in producing goods and services that they can produce most efficiently, while importing those that they cannot produce as efficiently.


• It creates opportunities for countries to access a wider variety of goods and services that may not be available domestically.


• International business promotes economic growth and development by allowing countries to expand their markets and increase their export potential.


• It fosters international cooperation and interdependence, leading to greater political stability and peace.


• Through international business, countries can benefit from economies of scale, increased competition, and technological advancements.


• It provides opportunities for cultural exchange and understanding between nations.


• International business facilitates the transfer of knowledge, skills, and technology across borders.


• It helps countries diversify their sources of income and reduce their dependence on a single market or industry.


• International business enables countries to take advantage of global market trends and consumer preferences.


• It encourages innovation and entrepreneurship as companies seek to stay competitive in the global marketplace.

In conclusion, the main reason behind international business is that countries cannot produce equally well or cheaply all that they need. Engaging in international trade allows countries to overcome their limitations, access a wider variety of goods and services, promote economic growth, foster cooperation, and benefit from various other advantages.

The degree of mobility of factors of production like labour and capital is relatively more within the Domestic Business.
Factors of production refer to the resources required for the production of goods and services. These resources include labour (human capital), capital (physical assets and financial resources), land, and entrepreneurship. The degree of mobility of these factors determines the ease with which they can move between different sectors or locations.
In the case of the degree of mobility of factors of production like labour and capital, it is relatively more within the Domestic Business. Here's why:
1. Labour Mobility:
- Within the domestic business, the mobility of labour is higher as workers can easily move between different companies and industries within the same country.
- Workers can seek employment in different regions or cities within their own country without facing significant barriers such as language or cultural differences.
- They can also easily commute to their workplace without the need for international travel or work permits.
2. Capital Mobility:
- Domestic businesses have relatively more flexibility in terms of capital mobility.
- Capital can be easily invested in different domestic industries or sectors without the need for complex international financial transactions or foreign exchange considerations.
- Investors can also diversify their portfolios by investing in different local businesses or projects.
3. Regulatory Environment:
- Domestic businesses operate within the legal and regulatory framework of their own country.
- This makes it easier for factors of production like labour and capital to adapt to the local laws and regulations, which might be more familiar and predictable compared to the regulatory environment of foreign countries.
4. Cultural and Language Factors:
- The domestic business environment often involves a common language and shared cultural norms, which makes it easier for factors of production like labour and capital to operate and communicate effectively.
- In international business, factors of production might face language barriers and cultural differences, which can hinder their mobility and effectiveness.
In conclusion, the degree of mobility of factors of production like labour and capital is relatively more within the Domestic Business compared to international business.

Foreign investment can be categorized into two types: direct investment and portfolio investment.
Direct Investment:
- Direct investment refers to when a foreign investor acquires a controlling interest in a company in another country. This can be achieved through various means such as buying shares, establishing a subsidiary, or forming a joint venture.
- The purpose of direct investment is to gain long-term ownership and control over the foreign company, allowing the investor to actively participate in its management and decision-making processes.
- Direct investment typically involves a significant commitment of capital and resources, and it is often associated with the transfer of technology, know-how, and managerial expertise from the foreign investor to the host country.
Portfolio Investment:
- Portfolio investment, on the other hand, involves the purchase of securities, such as stocks and bonds, in a foreign country without gaining control over the company.
- Portfolio investors are primarily interested in earning a financial return on their investment through capital appreciation and/or dividend and interest payments.
- Portfolio investment is relatively more liquid and can be easily bought or sold, allowing investors to quickly adjust their investment portfolios based on market conditions.
- Unlike direct investment, portfolio investment does not entail active involvement in the management of the invested company.
In conclusion, foreign investment can be classified into two main types: direct investment, which involves acquiring control over a foreign company, and portfolio investment, which involves purchasing securities in a foreign country without gaining control. Both types of investment have their own advantages and considerations, and investors choose between them based on their objectives, risk appetite, and desired level of involvement in the invested companies.

Explanation:
Licensing and franchising is the correct answer. Here is a detailed explanation of why licensing and franchising is the correct option for permitting another party in a foreign country to produce and sell goods under your trademarks, patents, or copyrights:
1. Licensing:
- Licensing refers to granting permission to another party to use intellectual property rights such as trademarks, patents, or copyrights in exchange for a fee.
- The licensor (the owner of the intellectual property) grants the licensee (the foreign party) the right to produce and sell goods using their intellectual property.
- The licensor retains ownership of the intellectual property while the licensee has the right to use it for a specified period and within certain limitations.
2. Franchising:
- Franchising is a specific form of licensing where the franchisor grants the franchisee the right to operate their business using their brand, trademarks, and business model.
- The franchisee pays fees and royalties to the franchisor in exchange for the right to use their intellectual property and receive ongoing support and guidance.
- Franchising often involves a more comprehensive package that includes not only the use of trademarks but also access to established business systems, training, marketing support, and ongoing assistance.
Advantages of Licensing and Franchising:
- Allows businesses to expand into foreign markets without directly establishing their own operations.
- Reduces the risk and cost of establishing a physical presence in a foreign country.
- The licensee or franchisee benefits from the established reputation and brand recognition of the licensor or franchisor.
- Provides a source of revenue for the licensor or franchisor through licensing fees, royalties, or a percentage of sales.
- Allows for the transfer of technology, knowledge, and expertise to the foreign party.
Conclusion:
Licensing and franchising provide a mutually beneficial arrangement for both the licensor or franchisor and the licensee or franchisee. It allows businesses to expand internationally while leveraging their intellectual property and expertise, while the foreign party benefits from access to established brands and systems.

Size and Composition of External Debt in India:
India's external debt refers to the total amount of money that the country owes to foreign creditors. The size and composition of external debt play a significant role in determining the level of indebtedness of a country.
Classification by the World Bank:
The World Bank classifies countries based on the size and composition of their external debt. According to this classification, India falls into the category of a less indebted country. This means that India's external debt is relatively low compared to its GDP and is considered sustainable.
Reasons for India's Classification:
There are several factors that contribute to India being classified as a less indebted country:
1. Low external debt-to-GDP ratio: India's external debt is relatively low compared to its Gross Domestic Product (GDP). This indicates that the country has a manageable level of debt in relation to its economic output.
2. Diverse composition of external debt: India's external debt is diversified across various sources such as multilateral and bilateral creditors, commercial banks, and international financial institutions. This diversification reduces the dependency on a single source and lowers the risk of default.
3. Foreign exchange reserves: India has a significant amount of foreign exchange reserves, which act as a cushion to meet external debt obligations. These reserves provide confidence to creditors and reduce the risk of default.
4. Stable economic growth: India has been experiencing relatively stable economic growth, which helps in generating sufficient revenue to service its external debt. A growing economy with stable macroeconomic indicators is seen as a positive factor by creditors.
Overall, India's classification as a less indebted country by the World Bank is a reflection of its relatively low external debt-to-GDP ratio, diverse debt composition, substantial foreign exchange reserves, and stable economic growth. However, it is essential for the country to continue managing its external debt prudently to maintain its classification and ensure sustainable economic development.