NCERT Solutions Class 11 Business Studies International Business-2

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NCERT Solutions for Class 11 Business Studies for International Business -II

Multiple Choice Questions

Q1. Which of the following documents are not required for obtaining an export license?

  1. IEC number
  2. Letter of credit
  3. Registration cum membership certificate
  4. Bank account number

Answer: b. letter of credit

Q2. Which of the following documents is not required in connection with an import transaction?

  1. Bill of lading
  2. Shipping bill
  3. Certificate of origin
  4. Shipment advice

Answer: b. shipping bill

Q3. Which of the following do not form part of duty drawback scheme?

  1. Refund of excise duties
  2. Refund of customs duties
  3. Refund of export duties
  4. Refund of income dock charges at the port of shipment

Answer: d. Refund of income dock charges at the port of shipment

Q4. Which one of the following is not a document related to fulfill the customs formalities?

  1. Shipping bill
  2. Export license
  3. Letter of insurance
  4. Proforma invoice

Answer: b. Export license

Q5. Which one of the following is not a part of export documents?

  1. Commercial invoice
  2. Certificate of origin
  3. Bill of entry
  4. Mate’s receipt

Answer: c. Bill of entry

Q6. A receipt issued by the commanding officer of the ship when the cargo is loaded on the ship is known as

  1. Shipping receipt
  2. Mate receipt
  3. Cargo receipt
  4. Charter receipt

Answer: b. Mate receipt

Q7. Which of the following document is prepared by the exporter and includes details of the cargo in terms of the shippers name, the number of packages, the shipping bill, port of destination, name of the vehicle carrying the cargo?

  1. Shipping bill
  2. Packaging list
  3. Mate’s receipt
  4. Bill of exchange

Answer: a. Shipping bill

Q8. The document containing the guarantee of a bank to honour drafts drawn on it by an exporter is

  1. Letter of hypothetication
  2. Letter of credit
  3. Bill of lading
  4. Bill of exchange

Answer: b. Letter of credit

Q9. Which of the following does not belong to the World Bank group?

  1. IBRD
  2. IDA
  3. MIGA
  4. IMF

Answer: d. IMF

Q10. TRIP is one of the WTO agreements that deal with

  1. Trade in agriculture
  2. Trade in services
  3. Trade related investment measures
  4. None of these

Answer: d. None of these

Short Answer Questions

Q1. Discuss the formalities involved in getting an export license.

Answer: The formalities involved in getting an export license are as follows:

  1. Bank account number: An exporter must open an account in a bank authorised by the RBI and get an account number.
  2. IEC Code: An export firm must obtain an IEC (Importer Exporter Code) from the Directorate General of Foreign Trade or the Regional. Import Export Licensing Authority by submitting documents such as the exporter’s profile, prescribed certificates, two attested photographs and details of non –resident interest.
  3. Registration-Cum- Membership Certificate: An export firm should get itself registered with the appropriate export promotion council, such as Engineering Export Promotion Council and the Apparel Export Promotion Council and obtain a RCMC.
  4. Registration with ECGC: An export firm must get itself registered with ECGC (Export Credit and Guarantee Corporation) in order to protect itself from any uncertainties in payments.

Q2. Why is it necessary to get registered with an export promotion council?

Answer: If a firm wants to export goods, then it must first obtain an export license. In order to obtain export license, a firm is required to register itself with the appropriate export promotion councils such as Engineering Export Promotion Council, Apparel Export Promotion Council. Such councils are set up by the government for promoting the export of various goods falling under their purview. Once the registration is complete, the firm obtains the RCMC. This helps the firm again to take advantage of the benefits given by Government.

Q3. What is an IEC number?

Answer: IEC (Import Export Code) number is issued by the Directorate General Foreign Trade (DGFT) or Regional Export Licensing Authority for export/import documents.

Q4. What is pre-shipment finance?

Answer: Pre-shipment finance is the finance that the exporter needs for procuring raw materials and other components, processing and packing of goods and transportation of goods to the port of shipment.

Q5. Why is it necessary for an export firm to go in for pre-shipment inspection?

Answer: Pre- Shipment inspection refers to the inspection of goods before their final shipment in order to ensure that only quality goods are exported. Pre-shipment inspection is a compulsory step for inspection of certain products by a competent agency as designated by the government. The government has passed Export Quality Control and Inspection Act, 1963 for this purpose and has authorised some agencies to act as inspection agencies. If the product to be exported comes under such a category, the exporter needs to contact the Export Inspection Agency (EIA) or the other designated agency for obtaining inspection certificate.

Q6. Discuss the procedure related to excise clearance of goods.

Answer: As per the Central Excise Tariff Act, excise duty is payable on the materials used in manufacturing of goods. The exporter therefore has to apply to the concerned Excise Commissioner in the region with an invoice. If the Excise Commissioner is satisfied, he may issue excise clearance. But in many cases, the government exempts the payment of excise duty or later on refunds the excise duty paid .This is done to encourage exports.

Q7. Explain briefly the process of custom clearance of export goods.

Answer: The goods must be cleared from the customs before these can be loaded on the ship. In this regards, the exporter first requires to submit the following documents to the customs appraiser at the custom house:

  1. Shipping bill
  2. Export order
  3. L/C
  4. Commercial invoice
  5. Certificate of origin
  6. Certificate of inspection
  7. Marine and insurance policy

After submission of these documents, the superintendent of the concerned port trust is approached for carting order and after obtaining it, the cargo is physically moved into the port area and stored in shed.

Q8. What is bill of lading ? How does it differ from bill of entry?

Answer: When goods are sent by ship, shipping company issues a document named as bill of lading. Bill of lading may be defined as a receipt given by the shipping company to the exporter for carrying the goods to the importer. When goods reach the destination, the importer gets them from the shipping company in return of bill of lading.

Bill of lading differs from Bill of entry in following respects:

  • Bill of lading is a document related to export transaction while bill of entry is a document related to import transaction.
  • Bill of lading is a receipt given by the shipping company to the exporter for carrying the goods to the importer. Bill of entry is a form supplied by the customs office to the importer for assessment of customs duties.

Q9. What is shipping bill?

Answer: Shipping bill is the main document on the basis of which the customs office gives the permission for export. It contains particulars of the goods being exported, the name of the vessel, the port at which goods are to be discharged, country of final destination, exporter’s name and address, etc.

Q10. Explain the meaning of mate’s receipt.

Answer: A mate receipt is a receipt issued by the commanding officer of the ship when the cargo is loaded on board, and contains the information about the name of the vessel, berth, date of shipment, description of packages, condition of the cargo at the time of receipt, etc.

Q11. What is a letter of credit ? Why does an exporter need this document?

Answer: A letter of credit may be defined as a letter issued by the importer’s bank in favour of the exporter containing an undertaking that the bills drawn by the exporter upon the importer up to the amount specified therein will be honored by banker on presentation. A letter of credit is a proof of the credit worthiness of the importer. The letter of credit is an assurance that bill will be paid by the bank. This method is favored by the exporter as it ensures a quick and guaranteed payment from the importer.

Q12. Discuss the process involved in securing payment for exports.

Answer: After shipment of goods, exporter informs importer about it sends important documents to enable him to claim the title of goods. Documents include copy of invoice, bill of lading, packaging list, insurance policy, certificate of origin, letter of credit etc. The exporter sends documents through his banker with instruction that they must be delivered only when importer accepts a bill of exchange.

Submitting documents with bank for getting payment is called ‘negotiation of the documents’.

A bill of exchange can be accepted in two ways:

  • Document against sight (sight draft) in which documents are given only against payment.
  • Document against acceptance (usance draft) in which documents are given only when importer accepts bill of exchange for making payment at the end of a certain period.

On receipt of bill of exchange, importer releases payment. After receiving payment, exporter has to get a bank certificate of payment. It states that necessary documents relating to export consignment have been negotiated & payment has been received as per exchange control regulations.

Q13. Differentiate between the following –

  1. Sight and usance drafts
  2. Bill of lading and airway bill
  3. Pre-shipment and post-shipment finance

Answer:

a)

Sight

Usance drafts

Documents are handed over

Documents are handed

to the importer once he or

over to the importer after

she agrees to sign the draft.

the acceptance of the bill

of exchange.

 

Payment is made at the

Payment is made on the

time of issuing the draft.

expiry of a specified

period.

 

b)

Bill of lading

Airway bill

Issued by shipping

Issued by airline

companies.

companies.

Goods are sent by ship.

Goods are sent by air.

c)

Pre-shipment finance

Post-shipment finance

Credit is obtained before

Credit is obtained after the

 

the shipment of goods.

shipment of goods.

Used for purchasing raw

Used for financing

materials to undertake

activities

production activities,

from the date of receiving

packaging of goods and

credit till payment is

transporting goods to the

received

port of shipment.

from the importer.

Q14. Explain the meaning of the following documents used in connection with import transactions

  1. Trade enquiry
  2. Import license
  3. Shipment of advice
  4. Import general manifest
  5. Bill of entry

Answer:

  1. Trade enquiry: A trade enquiry is a written request by the importer to the exporter for supply of information regarding the price and various terms and conditions on which the importer is ready to exports goods.
  2. Import license: It is a license which permits the import of goods that cannot be imported freely. In India, for obtaining an import license, an importer requires an IEC (Importer Exporter Code) number, which is obtained after the importer registration with the Directorate General for Foreign Trade (DGFT) or the Regional Import Export Licensing Authority.
  3. Shipment of advice: The shipment advice is a document that the exporter sends to the importer informing him that the shipment of goods has been made. Shipment of advice contains invoice number, bill of lading/airways bill number and date, name of the vessel with date, the port of export, description of goods and quantity, band the date of sailing of the vessel.
  4. Import general manifest: Import general manifest is a document that contains the details of the imported good. It is the document on the basis of which unloading of cargo takes place.
  5. Bill of entry: It is a form filled by the importer for assessment of custom import duty. It contains information such as the name and address of the importer, name of the ship in which the goods were transported and number of packages. The importer fills in the bill form and returns it to the customs office.

Q15. List out major affiliated bodies of the World Bank The major affiliated bodies of the world bank are:

Answer:

  1. International Bank for Reconstruction and Development (IBRD)
  2. International Financial Corporation (IFC)
  3. International Development Association (IDA)
  4. Multilateral Investment Guarantee Agency (MIGA)
  5. International Centre for Settlement of Investment Disputes(ICSID)

Q16. Write short notes on the following

  1. UNCTAD
  2. MIGA
  3. World Bank
  4. ITPO
  5. IMF

Answer:

  1. UNCTAD: The United Nation Conference on Trade and Development was established in 1964 with the objective of integrating the developing countries with the world economy through discussions. It undertakes activities such as collecting research and data for policy making and extending technical assistance to the less developed countries as per their requirements.
  2. MIGA: The Multinational Investment Guarantee Agency, or MIGA, was established in April 1988 with the objective of encouraging foreign direct investment in the less developed countries. It aims at insuring investors against political and non-commercial risks, providing advisory services, etc. c)
  3. World Bank: It is earlier known as International Bank for Reconstruction and Development (IBRD) setup to assist the reconstruction of war -affected countries and to facilitate the development of the under-developed nations of the world. Now, the World Bank turned its attention to the development of underdeveloped nations. Apart from investing in infrastructure development, agriculture, health and industry, the World Bank is significantly involved in programmes to remove poverty, increasing the income of the poor and providing technological support.
  4. ITPO: Indian Trade Promotion Organisation was setup on 1st January 1992 under the Companies Act 1956. Its main objective is to maintain close interactions among traders, industry and the government. In order to fulfill this objective, the ITPO organises trade fairs and exhibitions within and outside the country, thereby helping export firms to interact with international trade bodies.
  5. IMF: International Monetary Fund (IMF) came into existence in 1945 has its headquarters located in Washington DC. It aims at facilitating a system of international payments and adjustments in exchange rates among national currencies in order to bring about balanced growth at the international level and increase the levels of employment and income.

Long Answer Question:

Q1. 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.

Answer: Rekha garments will have to do the following:

  1. As an exporter it should assess the creditworthiness of the importer, Swift Imports, through an enquiry. It should then ask for a letter of credit from the importer’s bank.
  2. Once Rekha Garments is assured that it will be paid for the goods, it will need to register itself and secure IEC number in order to obtain and export license.
  3. After obtaining the license, it should acquire pre-shipment finance from a bank in order to purchase raw materials to undertake production and packaging.
  4. With the finance made available, Rekha Garments can procure the raw materials and other inputs required and start the production process.
  5. After the goods are produced, Rekha Garments must get them inspected before exporting them. For this inspection it should contact the Export Inspection Agency (EIA) or other designated agency and obtain a certificate of inspection.
  6. The exporter needs to secure excise clearance, for which it must submit an invoice to the regional excise commissioner. The excise commissioner then examines the invoice and if satisfied issues the excise clearance to the exporter.
  7. Once the excise clearance is received, Rekha Garment will need to have certificate of origin which specifies the country in which goods are being produced. It allows the importer to claim tariff concessions and other exemptions.
  8. The next step is for the exporter to submit an application to a shipping company for booking shipping space in a vessel. In the application, it must provide details such as the type of goods to be shipped and the port of destination. After the application is received, the shipping company will issue shipping order to the captain of its ship to inform him or her that he specified goods will be received on board after the customs clearance.
  9. The goods are then properly packed and labeled such as importer’s name, port of destination, gross and met weight of the goods etc.
  10. Once the goods are ready for export, Rekha Garments must insure the goods against perils of the sea or any related damage.
  11. It must then secure customs clearance before loading the goods on the ship. For this the exporter must submit necessary documents to the customs appraiser at Customs House.
  12. After customs clearance, mate receipt will be issued by the commanding officer or captain of the ship to the exporter as evidence that the cargo has been loaded on the ship.
  13. After this bill of lading will have to be obtained from the shipping company as a token of acceptance that the goods have been put on board in its vessel.
  14. After the goods are shipped, an invoice will have to be prepared by the exporter which will include the quantity of goods sent and the amount to be paid by the importer.
  15. The exporter then needs to send a set of documents to the banker which are to be handed over to the importer on acceptance of a bill of exchange. After receiving bill of exchange , the importer, Swift imports will instruct its bank to transfer money to the exporter’s bank account.
  16. Lastly, Rekha garments would be required to collect a bank certificate of payment, which will state that the necessary documents, along with the bill of exchange, have been presented to the importer for payment, and that the payment has been received in accordance with the exchange control regulations.

Q2. Your firm is planning to import textile, machinery from Canada. Describe the procedure involved in importing.

Answer: The importing firm will have to gather information about the price of the machinery, terms and conditions on which the selected Canadian exporter is willing to supply the goods. It should then send the trade enquiry to the exporter. After gathering information, the exporter will prepare a quotation called proforma invoice and send it to our firm. The importer needs to consult the Export Import (EXIM) policy to know whether the goods that he or she wants to import are subject to import licensing. If needed, it must secure an import license. The firm needs to obtain the IEC number. For this, the firm needs to contact Directorate General Foreign Trade (DGFT) or the relevant Regional Import Export Authority. The IEC (Import Export Code) number needs to be quoted in almost all the relevant documents. The firm must then convert domestic currency into foreign currency to make payment to the exporter. This is done by submitting an application to a bank authorised by RBI to issue foreign exchange in the prescribed form along with documents. After obtaining the import license, the importer places an import order or indent with the exporter for supply of the specified products containing information about the price, quantity, grade and quality of machinery and the instructions relating to packing, shipping, ports of shipment and destination, delivery schedule, insurance and mode of payment. The importer also needs to obtain a letter of credit from its bank. The letter of credit needs to be sent to the exporter so that the exporter gets a guarantee of payment. The importer should make arrangements in advance to pay to the exporter on arrival of goods at the port. This is necessary to avoid penalties on account of any delay in payment. After loading the goods at the port, the exporter sends the shipment advice to the importer. The shipment advice contains various details; such as invoice number, bill of lading/airways bill, name of vessel with date, port of export, description of goods, date of sailing vessel, etc. The importer must then prepare a bill of exchange that is to be handed over to the exporter’s banker in exchange for the export documents. After this is done, the importer is required to instruct its bank to transfer money to the exporter’s bank account.

Goods will be shipped by the overseas supplier as per the contract. The officer in charge at the dock will provide the document called import general manifest on the basis of which unloading of cargo will take place.

The importer needs to pay certain amount of custom duty. Custom clearance is a complicated procedure. Importers usually take the services of Carrying and Forwarding (C& F) Agent for getting custom clearance. Goods are released only after custom clearance.

Q3. Discuss the principal documents used in exporting.

Answer: The following are the principal documents used in exporting

Goods related documents -

  1. Export invoice: It is a sellers’ bill for merchandise and contains information about goods such as quantity, total value, number of packages, marks on packing, port of destination, name of ship, bill of lading number, terms of delivery and payments etc.
  2. Packing list – It is a statement of the number of cases and packs and details of goods contained in these packs. It gives details of the nature of goods which are being exported and the form in which these are being sent.
  3. Certificate of origin – This is a certificate which specifies the country in which the goods are being exported were produced . It allows the importer to claim tariff concessions and other exemptions.
  4. Certificate of Inspection- It is a proof that the goods being exported are of goods quality. The exporter contacts the Export Inspection Agency ( EIA) or another designated agency and obtains the certificate of inspection after getting the goods inspected.

Documents related to shipment

  1. Mate’s receipt - A mate receipt is a receipt issued by the commanding officer of the ship when the cargo is loaded on board, and contains the information about the name of the vessel, berth, date of shipment, description of packages, condition of the cargo at the time of receipt, etc.
  2. Shipping bill- Shipping bill is the main document on the basis of which the customs office gives the permission for export.
  3. Bill of lading - Bill of lading is a document wherein a shipping company gives its official receipt of the goods and at the same time gives an undertaking to carry them to the port of destination.
  4. Airway bill – It is issued by the airline as a token of acceptance that the goods for export have been put on board its aircraft.
  5. Marine insurance policy – It is a certificate of insurance contact under which the insurance company concerned, in return for a premium, agrees to pay premium agrees to pay an exporter a specified amount in case of loss of goods or damage caused during transport by sea.
  6. Cart ticket – A cart ticket is also known as cart chit, vehicle or gate pass. It is prepared by the exporter and includes details of the export cargo in terms of shipper’s name, number of packages, shipping bill number, port of destination and the number of the vehicle carrying the cargo.

Document related to payment –

  1. Letter of credit - A letter of credit is a guarantee issued by the importer's bank that it will honour payment up to a certain amount of export bills to the bank of the exporter.
  2. Bill of exchange - A bill of exchange is an instrument in writing containing an unconditional order signed by the maker, directing a person to pay a certain amount of money to the order of a person or to the bearer of the instrument.
  3. Bank certificate of payment – It is a certificate showing the necessary documents (including bill of exchange) relating to the particular export consignment has been negotiated (i.e presented to the importer for payment) and the payment has been received in accordance with the exchange control regulations.

Q4. List and explain various incentives and schemes that the government has evolved for promoting the country’s export.

Answer: The following are the various incentives and schemes that the government has evolved for promoting the country’s export –

  1. Duty drawback scheme – Under this scheme, exporters are either exempted from payment of excise duties or are refunded a certain percentage of the excise duty paid earlier. In cases where inputs are used for export production, the custom duties paid on import of raw material and machines are refunded.
  2. Export manufacturing under the bond scheme – This bond scheme enables exporters to undertake production of goods meant for exports without paying excise or other duties. In order to avail this scheme, the exporters must sign an undertaking that the goods produced are meant only for exports and not for domestic use.
  3. Exemptions from payment of sales tax – The goods that are meant for imports are not subject to sales tax. Since a long time, incomes derived from export operations were exempt from income tax. Now this benefit is limited to only those goods being produced in 100% Export Oriented Units (EOUs) and goods being produced in Export Processing Zones (EPZs) or Special Economic Zones (SEZs) for certain number of years.
  4. Advance License Scheme – It is a scheme under which an exporter is allowed duty free supply of domestic as well as imported inputs required for the manufacture of export goods. This facility is available both for regular exporters and intermittent exporters.
  5. Export Promotion Capital Goods Scheme (EPCG) – This scheme allows export firms to import capital goods at negligible or lower rates of customs duties subject to actual user condition and fulfillment of specified export obligations. This scheme helps the firm which may be interested in upgrading their manufacturing facilities.
  6. Scheme of recognising export house, trading house and super trading house – This scheme aims at facilitating well-established trading houses to market their products globally. Under the scheme, selected exporting firms are given the status of export house, trading house and star trading house by the government. This status is given on the basis of the past export performance of export firms.
  7. Export of Services: In order to boost the export of services, various categories of service houses have been recognized on the basis of the export performance of the service providers.
  8. Export finance: Finance is made available at concessional rates of interest to the exporters. Pre-shipment finance is provided to an exporter for financing the purchase, processing, manufacturing or packaging of goods for export purpose. Post- shipment finance is provided to the exporter from the date of extending the credit after the shipment of goods to the export country.
  9. Export Processing Zones (EPZs): These are industrial estates, which form enclaves from the Domestic Tariff Areas (DTA). These are usually situated near seaports or airports. They are intended to provide an internationally competitive duty free environment for export production at low cost.
  10. 100% Export Oriented Units (100 per cent EOUs): The 100%. Export oriented units scheme was introduced in early 1981 adopting the same production regime as EPZs but a wider option in location. EOUs were established with a view to generating additional production capacity for exports by providing an appropriate policy framework, flexibility of operations and incentives.

Q5. Identify various organisations that have been set up in the country by the government for promoting country’s foreign trade.

Answer: The various organisations that have been set up in the country by the government for promoting country’s foreign trade are –

  1. Department of Commerce: This department comes under the Ministry of Commerce, Government of India is the apex body responsible for formulating policies in the sphere of foreign trade, increasing commercial relations with other countries, state trading, export promotional measures and the development, and regulation of certain export oriented industries and commodities.
  2. Export Promotion Councils (EPCs): These are non profit organisations registered under the Companies Act or the Societies Registration Act. The basic objective of the export promotion councils is to promote and develop the country’s exports of particular products falling under their jurisdiction.
  3. Indian institute of Foreign Trade (IIFT) – This institute was established in 1963, under the Societies Registration Act. IIFT is an autonomous body responsible for the management of the country’s foreign trade. It is also a deemed university that provides training in international trade, conduct research in areas of international business and disseminates data related to international trade.
  4. Export Inspection Council (EIC) – The EIC was established by the Government of India under section 3 of the Export Quality Control and Inspection Act, 1963 with the objective of promoting exports through quality control and pre-shipment inspections. According to this Act, all goods that are meant for exports (except some commodities) must pass through EIC for quality inspection.
  5. Commodity Boards: These are the boards which have been specially established by the Government of India for the development of production of traditional commodities and their exports. These boards are supplementary to the EPCs and functions are also similar.
  6. Indian Trade Promotion Organisation (ITPO): It was setup on 1st January 1992 under the Companies Act 1956 by the Ministry of Commerce, Government of India. Its headquarter is at New Delhi. It is a service organisation which serves the industry by organizing trade fairs and exhibitions within the country and abroad and helps export firms in participating in international trade fairs and in developing exports of new items.
  7. Indian Institute of Packaging (IIP): It was set up as a national institute jointly by the Ministry of Commerce, Government of India, and the Indian Packaging Industry and allied interests in 1966. It is a training-cum- research institute pertaining to packaging and testing and caters to both domestic and export markets. It also undertakes technical consultancy, testing services on packaging developments, training and educational programmes, promotional award contests, information services and other allied activities.
  8. State Trading Organisations: The State Trading Organisation was set up in 1956. Its main objective is to stimulate trade; primarily export with various trading partners in the world. Many other trading organizations were also set up by the government; like Metals and Minerals Trading Corporation (MMTC), Handloom and Handicrafts Export Corporation (HHEC) etc.

Q6. What is World Bank? Discuss its various objectives and role of its affiliated agencies. Answer: The International Bank for Reconstruction and Development (IBRD), commonly known as World Bank is an international financial institution that was established in 1944 at the Bretton Woods Conference.

The various objectives of World Bank are:

  • To facilitate the task of reconstruction of the war-affected European countries.
  • To focus on the development of underdeveloped nations of the world.
  • To encourage investments in infrastructure development, agriculture, health and industry.
  • To eradicate poverty, increase the income of the poor and provide technological support.

The role of its affiliated agencies are:

  • The Multinational Investment Guarantee Agency (MIGA): It was established in April 1988 with the objective of encouraging foreign direct investments in the less developed nations of the world. It also aims at insuring investors against political and non-commercial risks and providing advisory services
  • International Development Association (IDA): It was set up in 1960 as an affiliate of the World Bank. It was established primarily to provide finance to the less developed member countries on a soft loan basis.
  • International Finance Corporation (IFC): It was established in July 1956 in order to provide finance to the private sector of developing countries. It is also an affiliate of the World Bank, but it has its own separate legal entity, funds and functions.

Q7. What is IMF? Discuss its various objectives and function?

Answer: International Monetary Fund (IMF) is the second international organisation next to the World Bank which came into existence in 1945 has its headquarters located in Washington DC. It aimed at facilitating a system of international payments and taking care of the adjustments in exchange rates among national currencies.

The various objectives of IMF are:

  1. To promote international monetary cooperation through a permanent institution.
  2. To facilitate expansion of balanced growth of international trade and to contribute thereby to the.
  3. Promotion and maintenance of high levels of employment and real income.
  4. To promote exchange stability with a view to maintain orderly exchange arrangements among member countries.
  5. To assist in the establishment of a multilateral system of payments in respect of current transactions between members.

Functions of IMF are:

  1. Providing short-term credit to member countries
  2. Providing machinery for the orderly adjustment of exchange rates
  3. Acting as a reservoir of currencies of all the member countries, from which a borrower nation can borrow the currency of other nations
  4. Acting as a lending institution of foreign currency and current transaction
  5. Determining the value of a country’s currency and altering it, if needed, so as to bring about an orderly adjustment of exchange rates of member countries
  6. Providing machinery for inter-national consultations.

Q8. Write a detailed note on features, structure, objectives and functioning of WTO.

Answer:

Features of WTO are as follows –

  1. It governs trade in goods, services and intellectual property rights among the member countries.
  2. It is a body created by an international treaty with the approval of the governments and legislatures of the member states.
  3. The decisions of the WTO are made by the governments of the member nations on the basis of consensus.

Structure of WTO is as follows –

  1. On January 1st, 1995, the General Agreement on Tariffs and Trade (GATT) was transformed into WTO to facilitate international trade among member countries. The head quarters of WTO are situated at Geneva, Switzerland.
  2. WTO comprises the Ministerial Conference, which is composed of international trade ministers from all member countries and is responsible for setting the strategic direction of the organisation and making all final decisions on agreements under its wings. The Ministerial Conference meets at least once every two years.
  3. The General Council is composed of senior representatives of all members responsible for overseeing the day to day business and management of the WTO.
  4. The Dispute Settlement Body is also composed of all the WTO members and overseas the implementation and effectiveness of the dispute resolution process for all WTO agreements.
  5. Council and are composed of all members. They provide a mechanism to oversee the details of the general and specific agreements on trade in goods and services.
  6. The Secretariat and Director General undertakes the administrative functions of running all aspects of the organization. The Secretariat has no legal decision-making powers but provides vital services, and often advice, to those who do. The Secretariat is headed by the Director General, who is elected by the members.
  7. The Committee on Trade and Development and Committee on Trade and Environment have specific mandates to focus on these relationships, which are especially relevant to how the WTO deals with sustainable development issues.

Objectives of WTO are:

  1. To ensure reduction of tariffs and other trade barriers imposed by different countries
  2. To engage in such activities which improve the standards of living, create employment, increase income and effective demand and facilitate higher production and trade
  3. To facilitate the optimal use of the world’s resources for sustainable development
  4. To promote an integrated, more viable and durable trading system.

Functions of WTO are:

  1. Promoting an environment that is encouraging to its member countries to come forward to WTO in mitigating their grievances.
  2. Laying down a commonly accepted code of conduct with a view to reducing trade barriers including tariffs and eliminating discriminations in international trade relations. Acting as a dispute settlement body.
  3. Ensuring that all the rules and regulations prescribed in the Act are duly followed by the member countries for the settlement of their disputes.
  4. Holding consultations with IMF and IBRD and its affiliated agencies so as to bring better understanding and cooperation in global economic policy making.
  5. Supervising on a regular basis the operations of the revised Agreements and Ministerial declarations relating to goods, services and Trade Related Intellectual Property Rights (TRIPS).

 

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