GSEB Class 11 Organization of Commerce and Management Solutions Chapter 10 International Trade

1. Select the correct alternative and write answers to the following questions :

 

Question 1. What is the trade of a country with another country called?
(a) Local trade
(b) Regional trade
(c) National trade
(d) International trade
Answer: (d) International trade
In simple words: When one country trades with another country, it is called international trade.

Exam Tip: International trade is about buying and selling goods and services across national borders.

 

Question 2. Name the document in which the importer describes the details of the order?
(a) Input
(b) OGL
(c) L/C
(d) Indent
Answer: (d) Indent
In simple words: An indent is a formal order document used by an importer to detail the specifics of goods they want to buy from a foreign seller.

Exam Tip: Remember that an 'indent' is essentially the purchase order in international trade, outlining all necessary product specifications.

 

Question 3. By which thing of trade, foreign exchange can be earned?
(a) Export trade
(b) Import trade
(c) Internal trade
(d) Regional trade
Answer: (a) Export trade
In simple words: When a country sells its products to other countries, it brings in money from those countries, which is called foreign exchange.

Exam Tip: Exporting goods earns foreign currency for a country, strengthening its economy, while importing spends it.

 

Question 4. Who issues the bill of lading to the exporter?
(a) Insurance company
(b) Shipping company
(c) The captain of a ship
(d) Bank
Answer: (b) Shipping company
In simple words: The shipping company, which transports the goods, gives the exporter a bill of lading as a receipt and contract for the shipment.

Exam Tip: A bill of lading acts as a title to the goods, a receipt, and a contract of carriage, making it crucial in international shipping.

 

Question 5. Name the certificate that states the country in which the goods were produced.
(a) Consular invoice
(b) Certificate of origin
(c) Shipping order
(d) Letter of credit
Answer: (b) Certificate of origin
In simple words: This document confirms which country the goods were made in, which is often important for customs duties and trade rules.

Exam Tip: The Certificate of Origin is vital for applying tariffs, quotas, and other trade regulations at the destination country.

 

Question 6. Who issues the shipping order?
(a) The captain of a ship
(b) Shipping company
(c) The captain of a ship
(d) Central bank
Answer: (b) Shipping company
In simple words: The shipping company gives a document called a shipping order. This order tells the ship's captain to allow the goods to be loaded onto the ship.

Exam Tip: A shipping order serves as an authorization from the shipping company to the ship's master to receive specified cargo.

 

Question 7. Which banks holds the control over foreign exchange in India?
(a) Local bank
(b) Merchant bank
(c) Reserve bank
(d) Agriculture bank
Answer: (c) Reserve bank
In simple words: In India, the Reserve Bank of India (RBI) is the main bank that manages and supervises all foreign currency transactions.

Exam Tip: Central banks like the RBI play a critical role in managing a country's foreign exchange reserves and maintaining currency stability.

 

Question 8. What kind of receipt does the captain of the ship issue to the exporter when there is no proper packing of the goods?
(a) Foul receipt
(b) Clean receipt
(c) Incomplete receipt
(d) Torn out receipt
Answer: (a) Foul receipt
In simple words: If the ship's captain sees that the goods are not packed correctly or are already damaged, they give a "foul receipt" to record these problems.

Exam Tip: A foul receipt indicates that the goods were not in good condition when loaded, which can lead to disputes and insurance claims.

 

Question 9. Which of the following media provides export incentives?
(a) World bank
(b) Merchant bank
(c) Merchant agreement
(d) Merchants
Answer: (c) Merchant agreement
In simple words: A merchant agreement refers to the commercial arrangements that can include benefits or support to encourage exports.

Exam Tip: Export incentives are often provided through government policies or specific trade agreements to encourage international sales.

 

Question 10. Name the document that the bank issues to the importer against the payment of the bill given by the exporter.
(a) D/A
(b) D/P
(c) OGL
(d) LOC
Answer: (b) D/P
In simple words: D/P means "Documents against Payment." It's a method where the importer gets the shipping documents only after paying for the goods.

Exam Tip: D/P (Documents against Payment) is a common method in international trade to ensure that the seller receives payment before the buyer takes possession of the goods.

 

Question 11. Name the agreement which is made between the shipping company and the exporter to rent the whole ship.
(a) Intent agreement
(b) Credit agreement
(c) Charter party agreement
(d) Exporter agreement
Answer: (c) Charter party agreement
In simple words: This is a contract where an exporter hires an entire ship for a specific trip or time period to transport their goods.

Exam Tip: A charter party agreement is used when an exporter needs the full capacity of a vessel, offering more control over the shipping schedule and cargo handling.

 

2. Answer the following questions in one sentence each :

 

Question 1. What is International Trade?
Answer: International trade happens when individuals, business groups, or governments of one country buy or sell products and services with individuals, business groups, or governments of other countries. This is also called foreign trade.
In simple words: International trade is when a country buys or sells goods and services from or to another country.

Exam Tip: Keep your definition concise, highlighting the cross-border exchange of goods and services.

 

Question 2. What is import?
Answer: Bringing goods or services into a country from a foreign country for selling them is called import.
In simple words: Import is buying goods or services from another country.

Exam Tip: Clearly state that imports involve bringing goods *into* one's own country from abroad.

 

Question 3. What is Export?
Answer: Sending goods or services to another country for selling them is called export.
In simple words: Export is selling goods or services to another country.

Exam Tip: Clearly state that exports involve sending goods *out of* one's own country to abroad.

 

Question 4. Explain the terms :
(i) OGL
(ii) WTO
(iii) GATT
(iv) SEZ
(v) EPZ
Answer:
(i) OGL: If a businessperson wishes to import or export goods or services listed by the government, they need to get an Open General License (OGL).
(ii) WTO: The World Trade Organization (WTO) is a worldwide organization that oversees international trade. It was set up on January 1, 1995, replacing GATT, with 104 nations including India signing an agreement.
(iii) GATT: In 1948, 23 countries, including India, established the General Agreement on Tariffs and Trade (GATT) in Geneva. GATT was a legal agreement that worked to reduce trade barriers like tariffs and quotas.
(iv) SEZ: A special economic zone (SEZ) is a specific area in a country that has different economic rules and more flexible economic laws compared to other parts of the country.
(v) EPZ: An Export Processing Zone (EPZ) is an area established by the Indian government to promote export trade. In these zones, exporters can easily import, re-process, manufacture, and export goods without interference from customs authorities. This helps the country earn more foreign money. These zones offer benefits like:

• Excise duties, financial transaction rules, and some labor laws are quite flexible in these zones.
• The government promises to provide all basic facilities such as roads, electricity, water, communication, and transportation, helping high-quality industries set up there.
• The government also gives details about export processes, global market demands, political situations favorable for export, and other information to people interested in export business.
• As part of its economic strategy, India has set up various free trade zones (FTZ) in places like Kandla, Santa Cruz (Mumbai), Falta (West Bengal), Noida, (Cochin, Chennai, Vishakhapattannam, Kosindra, (Near Dwarka) and Dahej (near Bharuch), etc.

In simple words: OGL is an easy license for specified trade items. WTO is a global group managing international trade. GATT was the older agreement aimed at lowering trade barriers. SEZ is a special area with relaxed business rules for growth. EPZ is a zone set up by the government to help businesses export more easily and bring in foreign earnings.

Exam Tip: For explaining terms, provide a clear, one-to-two sentence definition for each, covering its purpose and key characteristic. For EPZ, briefly mention the key incentives.

 

Question 4. Explain the terms :
(vi) D/A
(vii) D/P
Answer:
(vi) D/A: Documents against acceptance bill means a payment method for exported goods where the exporter sends the title and shipping documents with a bill of exchange to a bank or agent at the destination port. The bank or agent releases the goods once the bill is accepted by the consignee.
(vii) D/P: Documents against payment bill means the bank gives the shipping documents to the importer only after they pay the bill amount, as instructed by the exporter.
In simple words: D/A means the importer gets documents just by agreeing to pay later, while D/P means the importer must pay immediately to get the documents.

Exam Tip: D/A and D/P are crucial payment terms in international trade; distinguish them clearly by when payment is required relative to document release.

 

3. Answer the following questions in short :

 

Question 1. What is Bill of Lading?
Answer: A bill of lading is an official document exchanged between the shipper (exporter) and the carrier (transporter) of goods. It lists specific details such as the quantity of goods and their destination. The carrier issues this document to the exporter. The shipping company prepares three copies: one for itself and two for the exporter. The exporter then marks (endorses) one copy and sends it to the importer as part of the documentary bill. The importer can only get the goods from the carrier by showing this bill of lading.

• A bill of lading is a legal document between the shipper (i.e., exporter) of the goods and the carrier (i.e., the transporter). It contains details like quantity of goods, destination, etc.
• It is issued by the carrier to the exporter.
• The shipping company makes three copies of the bill of lading. It keeps one copy and gives the other two to the exporter.
• The exporter then makes a mark on one copy (i.e., endorses it) and sends it to the importer as part of a documentary bill. The importer can obtain the goods from the carrier only if he shows the bill of lading.

In simple words: A bill of lading is a key paper given by the shipping company to the exporter. It shows details of the goods being shipped and acts as a contract and receipt, allowing the importer to pick up the goods later.

Exam Tip: Emphasize that a Bill of Lading serves multiple purposes: it's a contract of carriage, a receipt for goods, and a document of title.

 

Question 2. What is called Consular Invoice?
Answer: A consular invoice is a document that certifies the shipment of goods. It includes details about the exporter, importer, quantity of goods, their price, and other relevant information. This invoice helps simplify the calculation and collection of excise duties.
In simple words: A consular invoice is a special document that confirms a shipment and helps customs officials figure out taxes easily.

Exam Tip: Consular invoices are often required by importing countries to monitor imports, establish fair market value, and ensure compliance with their trade policies.

 

Question 3. Why the certificate of origin is required in foreign trade?
Answer: A certificate of origin is needed in foreign trade to prove that the products being exported were entirely bought, made, or produced in India. This certificate helps in benefiting from trade agreements, reduced tariffs, and import concessions in the destination country.
In simple words: The certificate of origin is needed to show where goods were made. This is important for customs and special trade deals.

Exam Tip: Highlight that the Certificate of Origin impacts duties, quotas, and preferential trade agreements, making it essential for international commerce.

 

Question 6. What is Mate Receipt?
Answer: A mate receipt is a document issued by the ship's mate (the captain's representative) to the exporter after the goods are loaded onto the ship. This receipt confirms that the goods have been received on board and are properly packed for transport.
In simple words: A mate receipt is a paper given by the ship's officer to show that the goods have been put on the ship.

Exam Tip: Differentiate between a 'clean' mate receipt (goods in good condition) and a 'foul' mate receipt (indicating defects or issues with the goods).

 

Question 5. What is Charter Party Agreement?
Answer: After packaging and marking the goods, the exporter needs to send them. If an exporter wants to rent the entire ship to send the goods, it is called 'charter'. The agreement made between the shipping company and the exporter to rent the entire ship is known as a 'Charter party agreement'.
In simple words: A charter party agreement is when an exporter signs a contract with a shipping company to hire a whole ship for transportation.

Exam Tip: Understand that a charter party is distinct from a bill of lading, as it involves the leasing of the entire vessel or a substantial part of it.

 

Question 6. What is the Shipping Order?
Answer: When an exporter tells a shipping company to deliver goods to the importer, the shipping company gives the exporter a copy called a 'shipping order'. This order instructs the ship's captain to accept and load the specified goods onto the ship.
In simple words: A shipping order is a document from the shipping company that tells the ship's captain to load the exporter's goods.

Exam Tip: The shipping order is an internal document for the shipping company, authorizing the loading of cargo as per the exporter's request.

 

4. Answer the following questions in brief :

 

Question 1. Explain briefly the different incentives for export trade.
Answer: Incentives for export trade are various benefits and support given by the government to encourage businesses to sell their goods and services internationally. These incentives help exporters boost their sales and bring in more foreign money for the country.
1. Trade agreements:

• State or central governments make trade agreements with various countries. These agreements involve trading certain products or services with each other.
• Such trade agreements motivate exporters to grow their international business.

2. Financial and economic encouragement reward:

• Exporters get several financial and economic benefits to encourage them to make and sell products for export. These encouragements include:
• Giving some pre-decided reward directly to the exporter.
• Offering exemption or collecting very low sales tax and income tax on exported products.
• Giving partial or full exemption from income tax for money earned through export.
• Providing land, raw materials, electricity, equipment, etc., at cheaper rates for making goods or services for export.

3. Collective and systematic economic encouragement:

• Under this system, if an exporter reaches a pre-decided export quantity, they are allowed to import products worth the same amount of foreign money earned from their exports.
• Exporters who promise to export a certain quantity receive various benefits as encouragement. These benefits include:
• Providing land at reduced prices for making items that can be exported.
• Assisting in setting up factories to make products for export.
• Encouraging the creation of factories in free trade zones (areas) that are free from taxes and rules. Exporters in these zones must export all or a specified percentage of their production.

4. Financial facilities and services:

• Exporters receive several financial facilities and services that help them export.
• Arrangements are made so that exporters get their export bill (a document needed by customs) on the same day of export.
• Methods are provided to protect exporters from changes in foreign currency exchange rates.
• Arrangements are made to ensure that the importer or importing country can easily buy goods exported to them.
• Services are provided as a guarantor for the importer after evaluating their financial stability.

5. Non-financial facilities:

• Exporters also receive several non-financial facilities and services to motivate them. These include:
• Giving details about export opportunities, procedures, and benefits.
• Training people to make products suitable for export.
• Organizing competitions among exporters and awarding the best exporters.
• Providing details about the international export market.
• Preventing lock-outs or strikes in factories that illegally produce export items.

6. Special economic zone (SEZ):

• A special economic zone (SEZ) is a specific area in a country that has distinct economic regulations and more liberal economic laws compared to other parts of the country.
• In 2005, the Indian government passed a law for SEZs in parliament and put it into effect from February 10, 2006.
• Special economic zones include several types, such as: (a) Export processing zone (b) Free trade zone (FTZ) (c) Free ports (d) Industrial zone
• SEZs are set up to attract direct local and foreign investment.
• Under SEZ rules, the government offers partial or full exemption from customs duty, central excise, service tax, central sales tax, security transaction tax, etc., on products made within the SEZ.
• These zones encourage export trade. In such zones, exporters can import goods, re-process them if needed, manufacture goods, and export them without interference from customs authorities. This helps in bringing more foreign earnings to our country.
• Excise duties, financial transaction rules, and some labor laws are flexible in these zones.
• The government ensures that all basic facilities like roads, electricity, water, communication, and transportation are provided to industries set up in these zones.
• The government also shares information on export procedures, international market demand, political conditions favorable for export, and other relevant data with interested businesses.
• As part of its economic policy, India has developed various free trade zones (FTZ) in places like Kandla, Santa Cruz (Mumbai), Falta (West Bengal), Noida, (Cochin, Chennai, Vishakhapattannam, Kosindra, (Near Dwarka) and Dahej (near Bharuch), etc.

In simple words: Export incentives are government helps like special trade deals, money rewards, tax breaks, cheaper resources, and assistance for factories. They also provide market information and allow special economic zones with relaxed rules to boost exports and bring in foreign money.

Exam Tip: When explaining export incentives, categorize them (e.g., financial, non-financial, trade agreements, special zones) to ensure comprehensive coverage and structure your answer logically.

 

Question 2. Explain the role of World Trade Organization (WTO) in international Trade.
Answer: The World Trade Organization (WTO) is an intergovernmental body that oversees international trade. It helps to regulate trade among participating countries, providing a common platform for global commerce and promoting the expansion of globalization. Due to the WTO's effective policies and management, both manufacturing and service industries have experienced rapid growth. The WTO has brought the entire world closer, creating a global village. Its activities and encouragement have led to large-scale production and free trade of agricultural, industrial, and health-related products between countries. The WTO has also supported international education, leading to the establishment of many foreign universities in India. Furthermore, countries like America, Canada, and Australia have set up offices in India to encourage foreign education.
In simple words: The WTO manages world trade rules, helping countries trade fairly and freely. It promotes globalization, encourages industry growth, and brings countries closer by reducing trade barriers, even boosting international education.

Exam Tip: Focus on the WTO's primary functions: regulating trade, promoting free trade, fostering globalization, and its impact on various sectors and international cooperation.

 

Question 3. Write a note on General Agreement of Trade and Tariff (GATT) in International Trade.
Answer: The General Agreement on Tariffs and Trade (GATT):

• In 1948, 23 nations, including India, formed the General Agreement on Tariffs and Trade (GATT) in Geneva.
• The main goal of this agreement was to remove international trade barriers by lowering tariffs, encouraging global trade, and promoting regional division of labor.
• The policies established under GATT supported free trade, which meant liberalization and globalization.
• Under GATT, the Government of India made several agreements with different countries, allowing Indian industries to partner with industries from those countries and achieve progress.
• As a result of GATT, many modern types of trade emerged in India.

In simple words: GATT was an old agreement from 1948 that helped countries trade more easily by reducing taxes and rules on goods. It aimed to boost global trade and encouraged countries to work together.

Exam Tip: Key points for GATT include its establishment date, initial members, main objective (reducing trade barriers), and its role as a precursor to the WTO.

 

Question 4. “Sometimes the captain of the ship issues a foul receipt”. Explain the statement.
Answer:

• Goods meant for export need very careful packing and safety. Poor weather, sea storms, too much humidity, and other factors can damage the goods.
• Because of these risks, the exporter must follow packing instructions very strictly. No mistakes in packing are allowed.
• Once the packing is done, the ship's captain or their representative checks it. If they find any packing to be improper, they give a document called a foul receipt or 'dirty chit' to the exporter.
• The exporter is not allowed to load the goods onto the ship unless they repack them properly.

In simple words: A ship's captain gives a "foul receipt" if the goods are not packed correctly or are damaged. This means the goods cannot be loaded until the problems are fixed.

Exam Tip: Explain that a foul receipt indicates discrepancies or damage to the cargo when received by the carrier, which has implications for liability and insurance.

 

Question 5.
Answer: No country in this world can fully rely on itself. Every country needs other countries to share resources, products, and services. This need leads to international trade.

• International trade activities have existed since ancient times. Over time, science and technology have advanced greatly.
• As a result, countries started making a large number of goods and services. These countries then looked for other countries where they could sell their products.
• With the creation of various international trade organizations, countries became closer and traded more freely.
• Also, due to faster transportation, the internet, and e-commerce, trade became much quicker, and countries felt much closer.
• Now, we can trade with any country without leaving our offices. The entire world is connected and feels like a small village.
• Therefore, it is rightly said that the world is a global village.

In simple words: The prompt for this question on page 11 (Question 5) is missing in the source. Based on the context of the answer provided, the question is likely asking about the importance or development of international trade and how it makes the world a "global village." The answer explains that countries need each other's resources, leading to global trade, which has become easier and faster due to technology, making the world feel like one interconnected village.

Exam Tip: When a question is implied, address the most logical question based on the provided answer. Here, the focus on self-reliance and global village points to the significance and evolution of international trade.

 

5. Answer the following questions in detail :

 

Question 1. Give the meaning of Foreign Trade and explain its importance.
Answer: International (foreign) trade: When individuals, business groups, or governments of one country trade (i.e., either buy or sell) with individuals, business groups, or governments of another country, it is called international or foreign trade.

• The person who buys from a foreign country is called the importer of goods/services, while the one who sells is called the exporter.
• According to Thomas, 'Exchange of products between one country and another is called foreign trade.'

Importance of foreign trade: 1. Benefit of division of labor and specialization:

• A country might not produce all the necessary resources in sufficient amounts.
• In such situations, a country can easily get those resources from another country. For example, India has a very large population specializing in farming with low labor costs, unlike America. So, America can buy agricultural products from India.
• A country might also lack suitable weather, government policies, or skilled people to produce a specific resource, so it can get it through foreign trade.

2. Development of underdeveloped countries:

• Underdeveloped countries often lack specialized skills, scientific technology research, and other resources.
• These countries can import technology and processes, modern administrative methods, research knowledge, and advanced products to develop themselves.
• Governments of underdeveloped countries can make various trade agreements with other countries to uplift their own nations.

3. Maximum utilization of resources:

• A country imports technology, machinery, human labor, and business processes.
• It then uses these resources to make the best possible use of available resources within the country. For instance, importing a highly advanced printing machine can halve printing time. The printer can then use the remaining time for other printing tasks.

Thus, people in various countries can engage in foreign trade to improve their production efficiency and processes, ensuring maximum use of their resources. Also, any extra production from improved efficiency can be exported.
4. Development of auxiliary services: When a product or service is traded internationally, many other sectors also benefit. Banks, insurance, warehouses, communication, ports, commission agents, etc., all become part of foreign trade and experience development.
5. Maintains price stability:

• A country producing too much of a product can export it to other countries, preventing its price from falling below a certain level in the local market.
• If the price of a product or service rises sharply, the country can import it to control the price.

6. Improves standard of living:

• International trade creates competition among countries. Each country tries to produce high-quality, technologically advanced products at the lowest possible price.
• By doing so, a country can compete with international producers, increase its exports, and earn revenue. This approach also improves people's standard of living because they get better products at lower prices.

7. Exchange of culture, fashion, and knowledge: When countries participate in international trade, they come into contact with each other's culture, food, fashion, and society. They share and exchange these things and values, strengthening their relationships. Over time, this leads to greater cooperation and harmony.
8. Helpful in calamities:

• International trade is very helpful during natural disasters like floods, droughts, or tsunamis.
• In such situations, all countries offer assistance to the affected country and help it recover.
• For example, if farming fails in India due to drought, India can import agricultural products from other countries to overcome the crisis.
• Moreover, a country like India, with good trade relations with foreign countries, easily receives various types of help during calamities.

9. World as a market:

• Industrially developed and wealthy nations use advanced technologies and scientific methods, resulting in very large-scale production with precision and speed.
• Such countries are always looking for places where they can sell their excess production through international trade.

In simple words: Foreign trade is when countries buy and sell goods and services to each other. It's important because it helps countries get resources they don't have, develop new skills, use their resources better, grow related businesses, keep prices steady, improve living standards, share cultures, and get help during emergencies. It also makes the whole world feel like one big market.

Exam Tip: For detailed answers, start with a clear definition, then use numbered points with bulleted explanations to cover all aspects of importance, ensuring a structured and comprehensive response.

 

Question 2. Describe Import procedure.
Answer: The import process requires following a set of procedures established by the Government of India. These steps are outlined below:

Exam Tip: Memorize the sequence of steps in import procedures and be ready to describe each one clearly and concisely for full marks.

Answer:
1. Obtaining import license:
 Open General License (OGL): If a business person wants to import items or services listed by the government, they need to get an Open General License (OGL), which is usually simple to obtain.
 License from trade director: If an importer wants to import goods not on the government's list, they must apply to the comptroller of import trade for a license. The importer needs to give various details in their application, such as their name, address, full details of the goods to be imported, their financial records, the exporter's name, and the exporting country. If the assessing officers are completely satisfied with these details, they will provide the import license to the importer. If the government has set a quota for importing a specific quantity of goods, the importer receives a quota certificate, allowing them to import only up to the maximum amount stated on the certificate.

Exam Tip: Understand the difference between an OGL and a special license, as well as the conditions under which each is required, to accurately answer questions about import regulations.

Answer:
2. Obtaining foreign exchange:
 When goods are imported from another country, payment must be made in that country's currency. To do this, the importer needs to acquire the necessary foreign currency or foreign exchange. The importer has to submit an application in the prescribed format along with the import license to any bank that handles foreign exchange. The bank then forwards this application to the RBI. The RBI carefully checks the application and then approves the release of foreign exchange. The importer can then get the approved foreign exchange from the bank, mentioning the amount needed in American Dollars according to the current exchange rate.

Exam Tip: Highlight the role of the RBI in controlling foreign exchange and the steps an importer takes to get foreign currency for payments.

Answer:
3. Placing the indent or order:
 The order that the importer places for importing goods is called an 'indent'. This indent is placed with the exporter. First, the importer gathers details about different manufacturers and exporters in the exporting country, including information about the goods, their price, and other terms. They then give the indent to the chosen exporter. The indent includes specifics such as the quantity of goods, price, packaging, insurance, and the name of the transporter.

Exam Tip: Clearly define 'indent' and list the crucial details it must contain to ensure the order is processed correctly.

Answer:
4. Dispatching Letter of Credit (L/C): Generally, international traders may not know each other personally, so before an exporter ships goods, they want to ensure they will receive payment. For this reason, the importer obtains a Letter of Credit (L/C) from their bank and sends it to the exporter to confirm their creditworthiness.

Exam Tip: Emphasize the Letter of Credit as a key mechanism for guaranteeing payment and building trust in international transactions.

Answer:
5. Receipts of documents:
 Once the exporter receives the L/C, they prepare various shipping documents like the bill of lading, invoice, and the insurance policy for the goods. These are then sent to the importer via a foreign exchange bank. All these documents together are called a 'Documentary bill'. There are two types of documentary bills: D/A (Documents against acceptance) bills and D/P (Documents against payment) bills. The exporter may choose the type of bill based on the terms agreed with the importer.

Exam Tip: Differentiate between D/A and D/P bills and explain their significance in the transfer of documents and payment.

Answer:
6. Obtaining bill of lading:
 A bill of lading is a legal document between the shipper (exporter) of the goods and the carrier (transporter). It includes details like the quantity of goods, destination, etc. It is issued by the carrier to the exporter. The shipping company creates three copies of the bill of lading; it keeps one and gives the other two to the exporter. The exporter then marks one copy, endorsing it, and sends it to the importer as part of the documentary bill. The importer can only get the goods from the carrier if they show the bill of lading.

Exam Tip: A bill of lading is a critical document, acting as a contract of carriage, a receipt for goods, and a document of title. Mentioning these roles is important.

Answer:
7. Paying import duty or excise:
 Goods are not allowed to leave the port unless the duty on them is paid. If the importer is exempt from import duty, they can collect the goods without paying it. For this, they need to present a consular invoice and the certificate of origin (from the exporter) to get a certificate of exemption from the excise department. If the importer must pay full import duty, they need to pay it to take possession of the goods. If the importer only has to pay a partial duty, less than the actual amount, they need to fill out a 'bill of entry form'. This form contains details such as the ship's name, the port of origin, the exporter's name, the importer's name and address, and full details of the goods. Based on this form, the excise department determines the amount of duty to be paid by the importer. Once the importer pays the duty, the excise officer endorses the 'bill of entry' and gives it to the importer.

Exam Tip: Clearly explain the conditions for duty exemption and the purpose of the 'bill of entry form' in assessing and paying import duties.

Answer:
8. Payment of dock charges:
 A dock is a place where goods are stored upon arrival. Since imported goods are unloaded from the ship and managed by dock employees, the importer must pay dock charges for these services. Dock charges also include costs for equipment and facilities used for the goods in the dock. Dock charges must be paid regardless of how the goods arrived, whether by air, water, road, or rail. After paying these charges, the importer receives a dock receipt.

Exam Tip: Define 'dock' in the context of import procedures and explain why these charges are necessary, listing the types of services they cover.

Answer:
9. Obtain possession of goods:
 After completing all formalities, the importer can take possession of the goods. The importer needs to collect the goods from the bonded warehouse, where they are kept by the customs department for a specific period. If the importer does not collect the goods on time, they will have to pay demurrage along with extra rent.

Exam Tip: Note the importance of timely collection to avoid additional costs like demurrage, and explain where goods are stored before collection.

 

Question 3. Explain steps of Export procedure.
Answer: Export procedure:
 When a merchant sells goods to someone outside their own country, it is called export trade or export. A company that specializes in exporting goods made by other companies is known as an export house. The export procedure in India involves several important steps:

Exam Tip: Begin your explanation by defining export trade and briefly mentioning the role of an export house, setting the context for the detailed steps.

Answer:
1. Getting an order:
 The exporter gets an order from the importer. The exporter then gathers details regarding the importer's financial capability, creditworthiness, and reliability. Once assured, the exporter reviews the export order's specifics, such as the quantity of goods ordered, the agreed price with the importer, the type of packing required, the expected delivery date, insurance details, the transporter for sending goods, the bill amount, payment method, and any finalized terms and conditions before placing the order.

Exam Tip: Highlight that the initial order stage involves due diligence on the importer's reliability and precise confirmation of all order specifications to avoid future problems.

Answer:
2. Obtaining export license:
 The exporter then needs to get an export license to ship the goods. This license falls under the Imports and Exports Control Act. An exporter can easily get a general license for goods or services listed by the Indian government. For items not on this list, they can still be freely exported, but a specific license must be applied for from the government's trade department.

Exam Tip: Distinguish between general and specific export licenses and clarify the conditions under which each is required, noting the relevant regulatory body.

Answer:
3. Manufacturing or procuring goods:
 After getting the export license, if the exporter is a manufacturer, they start producing the goods according to the order. However, if the exporter is just a trader, they procure goods from the market that match the order's specifications.

Exam Tip: Explain that this step depends on whether the exporter is a manufacturer or a trader, detailing the different actions taken in each case.

Answer:
4. Foreign exchange activity:
 Importers pay exporters in the exporter's currency or in American dollars, but the exporter does not get the money directly. Even though many foreign exchange controls were eased after the economic reforms of 1991, exporters must still follow some rules. To track export income, it's mandatory for the exporter to apply to the RBI and ask them to change the foreign exchange received into their local currency. Exporters must provide complete details about how much foreign exchange they will get from the importer. The exporter also needs to submit a copy of this application to the bank or institution that will manage this financial transaction.

Exam Tip: Focus on the regulatory role of the RBI in foreign exchange conversion and the required documentation to ensure compliance and track export earnings.

Answer:
5. Obtaining letter of credit:
 To ensure the importer is financially capable of making payment, the exporter asks for a letter of credit from the importer before shipping the goods. The importer obtains this from their bank. Sometimes, if the exporter's bank has a branch in the importer's country, that branch may be asked to provide the letter of credit from the importer.

Exam Tip: Stress that the Letter of Credit serves as a payment guarantee for the exporter, reducing financial risk and facilitating secure transactions.

Answer:
6. Obtaining shipping order:
 When an exporter instructs a shipping company to deliver goods to the importer, the shipping company provides a copy called 'shipping order' to the exporter. To get a shipping order, the exporter writes an application to the shipping company, asking them to deliver the goods on a specific date. The application includes all details of the goods such as quantity, weight, sending date, and cost. Based on this application, the shipping company prepares a shipping order and gives it to the exporter.

Exam Tip: Define a 'shipping order' and outline the essential information that needs to be included in the exporter's application to the shipping company.

Answer:
7. Payment of excise duty:
 Excise duty is charged on products manufactured in India. The exporter prepares a shipping bill containing details such as the importer's name and address, the price and quantity of goods, their weight, the name of the port where goods will be loaded, the ship's name, and the shipping company. Based on these details and, if necessary, an inspection of the goods, the excise officer calculates the duty amount. Once the exporter pays the excise duty, they get permission to bring the goods to the port. If a product falls under a duty-free category, the exporter needs to fill out a form with a public notification certifying the goods are duty-free and submit it to the excise officer. The excise officer then issues a certificate for duty exemption to the exporter.

Exam Tip: Emphasize the shipping bill as a key document for excise calculation and clarify the process for obtaining duty exemption if applicable.

Answer:
8. Packing and marking of goods:
 The exporter must properly pack and mark the goods before shipping. Goods traveling long distances need to be securely packed to prevent damage from moist sea air. The exporter also needs to follow any specific packing instructions given by the importer. The shipping company determines its shipping charge based on the size, weight, and other factors. The exporter also marks important details on the goods, such as the importer's and exporter's names and addresses, the destination port, and the weight of the goods.

Exam Tip: Stress the importance of proper packing and clear marking to protect goods during transit and ensure smooth delivery, noting how shipping charges are calculated.

Answer:
9. Taking insurance of goods:
 To protect goods from potential sea risks like cyclones, damage from bad weather, theft by pirates, or ship sinking, the goods must be insured. The exporter contacts an insurance company, pays the premium, and gets a cover-note. Based on this cover-note, the insurance company then issues an insurance policy to the exporter.

Exam Tip: Explain the necessity of marine insurance in export trade to cover various risks, detailing the steps an exporter takes to obtain coverage.

Answer:
10. Obtaining carting order:
 A carting order is the final clearance from the customs department to either load the goods or transport them after import clearance. To get a carting order, the exporter must apply to the port authority, stating the location from where the goods are to be exported. In this application, the exporter includes all details from the shipping bill and also information about excise payment. The exporter then pays port-related expenses, such as bringing goods to the port and loading them onto the ship, and finally obtains the carting order.

Exam Tip: Clarify the purpose of a carting order as a final customs clearance document and list the key information required in the application.

Answer:
11. Mate receipt:
 The chief officer of the ship or the captain's representative is called the 'mate'. The mate checks if the goods loaded on the ship match the shipping bill. If the goods' details and packing are correct, the captain or their representative issues a 'mate-receipt', confirming acceptance of the goods. However, if the captain finds that the goods are improperly packed and unsuitable for transport, they mark the mate's receipt. This is called a 'foul receipt' or 'dirty chit'. If the exporter remedies the issue, they then obtain a 'clean chit' to export the goods.

Exam Tip: Differentiate between a standard mate's receipt and a 'foul receipt', explaining what each signifies regarding the condition of the goods.

Answer:
12. Obtaining bill of lading:
 A bill of lading is a legal document between the shipper (exporter) of the goods and the carrier (transporter). It includes details like quantity of goods, destination, etc., and is issued by the carrier to the exporter. When the exporter shows the mate receipt to the shipping company, the company gives them insurance for the goods during transport through a document called 'Bill of Lading'. The bill of lading contains details such as the exporter's name, ship's name, fare, goods details, price, weight, exporting port, and terms and conditions of export. The shipping company makes three copies of the bill of lading; it keeps one and gives the other two to the exporter. The exporter sends one copy to the importer so they can obtain the goods.

Exam Tip: Reiterate the multiple functions of a bill of lading—receipt, contract, and document of title—and explain how it facilitates the importer's access to the goods.

Answer:
13. Certificate of origin:
 This is a document confirming the country where the exported products were entirely sourced, manufactured, or produced. Many countries have agreements to offer concessions on import excise duties. An exporter needs a certificate of origin to qualify for these concessions under such agreements. Exporters can get this certificate from a Trade Association, Chamber of Commerce, or the Government.

Exam Tip: Explain the primary purpose of a certificate of origin in international trade, especially its role in obtaining tariff concessions and identifying the source country.

Answer:
14. Consular invoice:
 When goods arrive at the importer's location, the importer must pay excise duty. To simplify this payment, some countries require a consular invoice. A consular invoice is a document that certifies the shipment of goods and provides details about the exporter, importer, quantity, price, etc. This makes calculating and collecting excise duties easier. The exporter can get a consular invoice from the consulate of the importing country located in their exporting country.

Exam Tip: Focus on the consular invoice as a customs document that streamlines excise duty payments by providing comprehensive shipment details.

Answer:
15. Sending documents:
 The exporter sends a 'Documentary bill', which includes important documents like the invoice, insurance policy or cover-note, bill of lading, certificate of origin, consular invoice, and bill of exchange, to the importer's foreign exchange bank via their own foreign exchange bank.

Exam Tip: List the key documents included in a 'Documentary bill' and explain their collective importance in an international trade transaction.

Answer:
16. Collection of money:
 The exporter instructs their bank to collect money from the importer. The exporter then prepares a Bill of Exchange for the amount specified in the export invoice. This bill of exchange can be either a Document against Acceptance (D/A) bill or a Document against Payment (D/P) bill. If it's a D/A bill, the title documents for the goods are given to the drawee (importer) only when they accept the D/A bill. If it's a D/P bill, the title documents for the goods are given to the drawee only after full payment. The bank collects money on behalf of the exporter according to the D/A bill's maturity date. In the case of a D/P bill, the bank sends the amount to the exporter.

Exam Tip: Clearly differentiate between D/A and D/P bills, explaining how each affects the release of documents and the timing of payment for the importer.

 

Question 4. Explain the problems of International Trade.
Answer: Although international trade offers many benefits and high profits, it also comes with several problems:

Exam Tip: When discussing problems, categorize them logically (e.g., currency, language, distance) for a well-structured answer, and provide a brief explanation for each.

Answer:
1. Problem of currency: Different countries have different currencies, making it hard for an exporter to complete transactions. Foreign currency needs to be converted through foreign exchange banks, which involves paying charges. Also, understanding foreign exchange dealings is necessary.

Exam Tip: Highlight currency conversion costs and the need for expertise in foreign exchange as main challenges due to differing national currencies.

Answer:
2. Diversity of language:
 Different countries have diverse languages, which makes communication quite difficult. For instance, an Indian exporter dealing with China needs to know basic Chinese. However, English has become an internationally accepted language, largely solving this problem. Even so, language remains an issue when dealing with less developed or rigid countries.

Exam Tip: Discuss language barriers as a communication challenge, noting English's role but also persistent issues with non-English speaking partners.

Answer:
3. Problem of distance:
 International trade requires transporting goods over long distances. This makes trade costly, time-consuming, and can also lead to communication problems.

Exam Tip: Briefly explain how geographical distance contributes to increased costs, time delays, and communication difficulties in global trade.

Answer:
4. Restrictions and controls:
 Every country has its own political and economic policies, requiring traders to deal with these specific situations. Excessive restrictions imposed by countries can become a barrier to international trade.

Exam Tip: Emphasize that differing national policies and overly strict regulations can significantly hinder the smooth flow of international trade.

Answer:
5. Risk:
 International trade mainly happens via sea, which involves several risks. Bad weather, extremely humid conditions, or other factors can sometimes damage goods. Moreover, a ship might sink or be hijacked by pirates, leading to significant loss of goods.

Exam Tip: List common risks associated with sea transport, such as weather damage, piracy, and sinking, to highlight the need for insurance and risk management.

Answer:
6. Difference in laws:
 Different countries have varying trade laws, which makes international trade difficult to manage.

Exam Tip: Point out that disparities in legal frameworks across countries complicate compliance and transaction management for global traders.

Answer:
7. Lack of trader's contact:
 Typically, international traders do not know each other personally or meet face-to-face. This can lead to bad debts. Moreover, resolving disputes becomes very challenging during disagreements.

Exam Tip: Discuss how a lack of personal contact in international trade can increase the risk of bad debts and make dispute resolution more complex.

Answer:
8. Problem of common weights and measurements:
 Sometimes, countries use different weights and measurement systems, which can lead to misunderstandings and other problems. For instance, while some countries measure in kilograms, others might measure in pounds.

Exam Tip: Explain how variations in measurement units between countries can cause confusion and practical difficulties in international trade.

 

Question 5. State the difference between Internal and International Trade.
Answer: Here is a comparison of the key differences between internal trade and international trade:

Exam Tip: When comparing, use a table format with clear points of difference to present information effectively, ensuring each point has distinct characteristics for both types of trade.

Exam Tip: For comparative questions, ensure your points of difference are consistent and clearly contrast the two subjects, using specific examples if possible.