International Business NCERT Solutions | Business Studies (BST) Class 11 - Commerce PDF Download

Short Answer Questions 

Q2: Discuss any three advantages of international business. 
Ans: International business refers to international transactions among countries. For example, Foreign direct investment, contract manufacturing, etc. It is a much broader concept than international trade. It involves the movement of goods, capital, personnel, technology, and intellectual property such as patents internationally. The 3 main advantages of international business are: 

1. An international business helps a country to earn foreign exchange which can be later used for meeting its import requirements such as technology and capital goods. 
2. It helps to use the natural resources in the most optimal way and avoid the wastage of resources. It ensures price stability by avoiding any fluctuations in it. It also tries to equalize the Global price. 
3. It promotes a large scale production because the needs of the consumers are to be met locally as well as internationally. A large scale production also helps to ensure many internal economies which lead to a lower cost of production.

Q3: What is the major reason underlying trade between nations? 
Ans: The major reason underlying trade between Nations is explained below: 

• The major reason is the theory of comparative cost advantage. It means that all the countries cannot produce all the goods due to the unequal distribution of natural resources or due to the differences in their productivity level. 
• Some of the resources are abundant in one country and scarce in another. So the country with abundant resources engages in international trade with the country with scarce resources.
• Different countries are endowed with different factors of production- land, labour, capital, and entrepreneur. 
• India is a labour abundant country, so it engages in commodity production which uses labor-intensive method and exchanges it for those which use capital intensive methods, for example, USA.
• One country always has a comparative advantage in the production of good as compared to others. 
• In conclusion, every country estimates the goods that it can produce in the most optimum whey and exchanges it for another good giving rise to international trade.

Q4: Differentiate between contract manufacturing and setting up wholly owned production subsidiary abroad.
Ans: The difference between contract manufacturing and setting up wholly- owned production subsidiary abroad are:

Q5: Why is it necessary for an export firm to go in for pre-shipment inspection? 
Ans: It is important for an export firm to go in for pre-shipment inspection due to the following reasons: 

• It is an important step to inspect products by a competent agency as designated by the government. 
• The government had introduced the Export Quality Control and Inspection Act in 1963 and had authorized some agencies to act as an inspection agency.
• If the product to be exported falls under this category, the firm has to contact the export inspection agency to obtain the inspection certificate.

Q6: What is bill of lading? How does it differ from bill of entry? 
Ans: Bill of lading is a document where a shipping company gives it official receipt of the good to put onboard its vessel and at the same time give an undertaking to carry them to the port of destination. It is different with the bill of entry in the following way:

Q7: What is a letter of credit? Why does an exporter need this document? 
Ans: A letter of credit is a guarantee that is issued by the importer's Bank. It states that it will honor the payment of export bills to the bank of the exporter up to a certain limit. It is important for an exporter to obtain this document because it ensures the security of the mode of payment adopted to settle any International transaction.

Q8: Discuss the process involved in securing payment for exports.
Ans: The process involved in securing payment for exports are: 

• The exporter informs the importer about the shipment of the goods. 
• Exporters send the documents such as a bill of lading, certified copy of the invoice and the packing list. These are required by the important to claim the title of the good on the arrival at his country and to get the customs clearance. 
• These documents are sent through exporters banker along with an instruction that these may be delivered to the importer only after acceptance of the bill of exchange. 
• The exporters Bank receive the payment through the imported bank and is credited to the exporter's account. 
• The exporter gets immediate payment from his bank if he submits the document by signing a letter of indemnity.
• After receiving the payment for Exports, the exporter has to obtain a certificate of payment from the bank. This certificate states that all the necessary documentation relating to the export consignment has been presented to the import of payment and the payment has been received according to the exchange control regulations.

Long Answer Questions

• The scope of international business is wider than international trade. 
• International trade consists of export and import of goods and is an essential component of the international business. 
• International business includes the international exchange of services of travel, tourism, warehousing, banking, insurance, etc. It also includes foreign investment, contract manufacturing and Overseas production of goods and services. 
• International trade is done by exporting of goods why international business is done by licensing, franchise, joint venture, contract manufacturing and establishment of wholly-owned subsidiaries.

Q2: What benefits do firms derive by entering into international business? 
Ans: Firms derive many benefits by entering into international business such as the following:

• The firms whose products have a high demand in the domestic market set up high production capacity for their products by planning for overseas expansion as well. 
• International business is more profitable. They earn a high level of profit by selling its products in countries where the prices are high, especially when he domestic prices are low.
• When the demand for the goods begin to be saturated in the domestic market, the firm can enter into an international market. 
• The firm can achieve a high degree of growth in intense competition in domestic market is by entering into international business. 
• Many companies form strategic policies and management and are able to gain in the international market.

Q3: In what ways is exporting a better way of entering international markets than setting up wholly owned subsidiaries abroad. 
Ans: Exporting is considered to be a better way of entering into International markets than setting up wholly-owned subsidiaries abroad due to the following reasons: 

• Exporting is an easy way to enter into the international market as compared to wholly-owned subsidiaries. It is easier to establish and manage. 
• It's less involving because the firm need not invest much time and money. 
• The wholly-owned subsidiary required 100% equity investment to be made by the foreign company. The small and medium producers do not prefer this mode to enter into international business. 
• Exporting has less risk because it does not require much investment in foreign countries.
• Wholly owned subsidiaries have a high degree of political risk as well as a high risk of loss.

Q4: 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: Rekha will have to do the following to execute the export order: 

• Rekha must make an inquiry about the creditworthiness of the importer- Swiss importer limited. She may ask for a letter of credit by the importer’s bank. 
• Next, they have to register themselves and receive an import-export code number to obtain an export license. 
• The company will have to obtain pre-shipment finance from the importer's Bank to obtain the raw material required for production and packaging. 
• Rekha can proceed to get the garments ready as per the specifications from the importer but only after obtaining the pre-shipment finance from the bank. 
• Rekha must contact the export inspection agency or any other designated agency for obtaining a certificate of inspection. 
• After clearing the pre-shipment inspection, it will have to obtain excise clearance from the Excise Commissioner. The Excise Commissioner would examine the invoice and will issue an excise clearance to the exporter if satisfied. 
• The company has to obtain a certificate of origin which state the country in which the goods have produced. This might help the importer to gain benefit from any tariff concession.
• The company then has to apply to a shipping company for the provision of shipping space. All the necessary information including the types of goods to be imported, date of shipment and port of shipment has to be mentioned clearly. 
• The goods are properly packed and labeled them with all the necessary information.
• They have to get the goods insured against the risks involved and obtain customs clearance, 
• The goods are loaded on the ship and the commanding officer issues a mate's receipt.
• The shipping company would issue a bill of lading after the receipt of the freight, as a token of acceptance. 
• After the goods are shipped, the exporter prepares and invoice including the quantity of the good send and the amount to be paid by the importer.
• The exporter then sends a set of documents to the banker which has to be given to the importer on the acceptance of a bill of exchange. After receiving it, Swiss imports limited will instruct its bank to transfer the money to the exporter's bank account. 
• The exporter will collect a bank certificate of payment stating that the necessary documents and the bill of exchange have been presented to the importer for the payment and the payment has been received according to the exchange control regulations.

Q5: Your firm is planning to import textile machinery from Canada. Describe the procedure involved in importing.
Ans: Import textile machinery has to undertake the following steps for importing from Canada:

• The importer has to obtain IEC or the import-export code number by applying to the Regional import-export licensing authority. This is used to file the formalities of the import procedure.
• The importer has to obtain a registration cum membership certificate. It is issued by the import promotional Council, federation of India import organization and import Development Authority. 
• The importer has to issue a letter of credit in favor of the exporter from his bank. The importer instructs the bank about the documents to be collected from the exporter before making payment. 
• The exporter ships the goods as per the specifications of the important. When the goods reach the importer’s country, the captain of the ship informs the dock officer and instructs him to receive the goods and record the details about the goods on the document called the import general manifest. 
• The dock authorities inform the importer about the arrival of the goods. The importer prepares the bill of entry which contains details about the imported goods and submits this to the customs officers to receive a customs clearance.
• The Customs officer exam is the bill of entry and passes it on to the appraiser officer who verifies the details present in it. The bill is later returned to the importer to pay the custom duty.

Q6: What is IMF? Discuss its various objectives and functions.
Ans: International Monetary organization or IMF was established in 1945. Its headquarters is located in Washington DC. It aims at setting up a system of international payments and taking care of the adjustment in exchange rate among various currencies.

Objectives:

• To promote International Monetary cooperation among the member countries. 
• To promote the growth of employment and income by promoting balanced growth of international trade. 
• To promote exchange stability to maintain orderly exchange arrangement among the member countries. 
• To facilitate International payments among the member countries. 

Functions:

• To provide short term credit to member countries. 
• To provide the required machinery to orderly adjust the exchange rate. 
• To become a lending Institution of foreign currency. 
• To determine the value of a country's currency and altering it if required to bring about an orderly adjustment of the exchange rate of member countries. 
• Maintain stability in the exchange rate of the member countries.

Q7: Write a detailed note on features, structure, objectives and functioning of WTO.
Ans: World Trade Organization or the WTO was formed as a successor of General agreement on tariffs and trade or GATT in 1995. Its headquarters are located in Geneva, Switzerland. It deals with the trade in goods and services as well as the Intellectual Property Rights among the member countries. All the decisions are made by the government of the member countries.

Objectives: 

• To provide an integrated and durable trading system. 
• To facilitate the optimum utilization of resources for sustainable development. 
• To improve the standard of living, create employment, etc. among the member countries. 
• To ensure the reduction of tariff and any other trade barrier imposed by other countries.

Functions: 

• WTO provides a conducive environment and encourages the member countries to come forward and discuss their grievances. 
• It acts as a dispute settlement body. 
• It ensures that all the rules and regulations prescribed by it are duly followed by member countries. 
• It Lays down a commonly accepted code to reduce the trade barriers, tariffs etc. 
• It holds regular consultations with IMF and IBRD to bring a better level of cooperation globally