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Class 11 Business Studies Chapter 12 International Business – II
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International Business – II
Chapter: 12
VERY SHORT TYPE QUESTIONS ANSWERS (1 MARK EACH)
A. Multiple Choice Questions:
1. Which of the following documents are not required for obtaining an export license?
(a) IEC number.
(b) Letter of credit.
(c) Registration cum membership certificate.
(d) Bank account number.
Ans: (b) Letter of credit.
2. Which of the following documents is not required in connection with an import transaction?
(a) Bill of lading.
(b) Shipping Bill.
(c) Certificate of origin.
(d) Shipment advice.
Ans: (d) Shipment advice.
3. Which of the following do not form part of duty drawback scheme?
(a) Refund of excise duties.
(b) Refund of customs duties.
(c) Refund of export duties.
(d) Refund of income dock charges at the port of shipment.
Ans: (d) Refund of income dock charges at the port of shipment.
4. Which one of the following is not a document related to fulfill the customs formalities.
(a) Shipping bill.
(b) Export licence.
(c) Letter of Insurance.
(d) Proforma invoice.
Ans: (d) Proforma Invoice.
5. Which one of the following is not a part of export documents.
(a) Commercial Invoice.
(b) Certificate of origin.
(c) Bill of Entry.
(d) Mate’s receipt.
Ans: (c) Bill of Entry.
6. A receipt issued by the commanding officer of the ship when the cargo is loaded on the ship is known as
(a) Shipping receipt.
(b) Mate’s receipt.
(c) Cargo receipt.
(d) Charter receipt.
Ans: (b) Mate’s receipt.
7. 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?
(a) Shipping bill.
(b) Packaging list.
(c) Mare’s receipt.
(d) Bill of exchange.
Ans: (a) Shipping bill.
8. The document containing the guarantee of the bank to honour drafts. Drawn on it by an exporter is
(a) Letter of hypothecation.
(b) Letter of credit.
(c) Bill of lading.
(d) Bill of Exchange.
Ans: (b) Letter of Credit.
9. Which of the following does not belong to the world Bank group
(a) IBRD.
(b) IDA.
(c) MIGA.
(d) IMF.
Ans: (c) MIGA.
10. TRIP is one of the WTO agreements that deal with-
(a) Trade in agriculture.
(b) Trade in Services.
(e) Trade related investment measures.
(d) None of these.
Ans: (d) None of these.
Short & Long Answer Questions
1. Discuss the formalities involved in getting an export licence.
Ans: Following are the formalities involved in getting an export licence:
(i) Opening a bank account in any bank authorized by the Reserve Bank of India and getting an account number.
(ii) Obtaining Import Export Code (IEC) number from the Directorate General of Foreign Trade (DGFT) on Regional Import Export licensing Authority.
(iii) Registering with appropriate export promotion council.
(iv) Registering with appropriate export credit and Guarantee Corporation (ECGO) in order to safeguard against risks of non- payment.
2. Why is it necessary to get registered with an export promotion council?
Ans: It is obligatory for every exporter to get registered with the appropriate export promotion council. It is because of the fact that Government sets up various export promotion councils such as. Engineering Export Promotion council (EEPE) and Appeared Export Promotion Council (AEPC) for promoting and developing exports of different categories of products. It is necessary for the exporter to because a member of the appropriate export promotion council and obtain a registration cum membership certificate (RCMC) for availing benefit available to export firms from the Government. Registration with the ECGO is necessary in order to protect overseas payments from political and commercial risks. Such a registration also helps the export firm in getting financial assistance from commercial banks and other financial institutions.
3. What is IEC number?
Ans: One of the important pre-requisite for getting an export licence is obtaining Import Export Code (IEC) number from the Directorate General foreign Trade (NGFT) or Regional import Export licensing authority. An export firm needs to have the Import-Export Code (IEC) number as it needs to be filled an various export/import documents. For obtaining the IEC number a firm has to apply to the Director General for foreign Trade (DGFT) with documents such as export/Importer profit, bank receipt for requisite fee, Certificate from the banker on the prescribed form, two copies of photograph attested by the banker, details of the non-resident interest and declaration about the applicants non-association with caution listed firms.
4. What is pre-shipment finance?
Ans: Once a confirmed order and also a letter of credit have been received, the exporter approaches his banker for obtaining pre-shipment finance to undertake export production. Pre-shipment finance is the finance that the exporter need for procuring raw materials and other components processing and packing of goods and transportation of goods to the port of shipment.
5. Why is it necessary for an export firm to go in for pre- shipment inspection?
Ans: The Government of India has initiated many steps to ensure that only good quality products are exported from the country. One such step is compulsory inspection of custom 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 authorized some agencies to act as inspection agencies. If the product to be exported cause under such a category, the exporter needs to contact the Export Inspection Agency (EIA) or the other designated agency for obtaining inspection certificate. The pre-shipment inspection report is required to be submitted along with other export documents at the time of exports. Such an inspection is not compulsory in case the goods are being imported by star trading houses, trading houses, export houses. Industrial units set up in processing zones.
6. Discuss the procedure related to excise clearance of goods.
Ans: As per the central excise tariff act, excise duty is payable on the materials used in manufacturing 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 the excise clearance. But, in many cases the government exempts payment of excise duty or later on refunds it if the goods. So manufactured are meant for exports. The idea underlying such exemption or refund is to provide an incentive to the exporters to export more and also to make the export products more competitive in the world markets. The refund of excise duty in known as duty drawback. This scheme of duty drawback is presently administered by the directorate of drawback under the Ministry of Finance which is responsible for fixing the rates of drawback for different products. The work relating to sanction and payment of drawback is, however looked after day the commissioner of customs or central excise incharge of the concerned part/airport/land custom station from where the export of goods is considered to have taken place.
7. Explain briefly the process of customs clearance of export goods.
Ans: For obtaining custom clearance, the exporter prepares the shipping bill, shipping bill is the main document on the basis of which the customs office gives the permission for export. Shipping bill 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, exporters name and address etc.
8. 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 its official receipt of the goods put on board its vessel and at the same time gives an undertaking to carry them to the port of destination. It is also a document of title to the goods and as such is freely transferable by the endorsement and delivery.
Difference between bill of lading and bill of entry is that-
Bill of Lading is a document signed by the masters of the ships in their capacity of carriers, acknowledging the receipts of merchants goods in the ship.
But, Bill of Entry is to be filled in by an importer in import trade. The bill of Entry form is supplied by the customers office and is to be filled in triplicate
9. What is shipping bill?
Ans: The shipping bill is the main document on the basis of which customs office grants permission for the export. The shipping bill contains particulars of the goods being exported, the name of the vessel, the port at which goods are to be disrecharged, country of final destination, exporter’s name and address etc.
10. Explain the meaning of mate’s receipt.
Ans: Mate’s receipt is given by the commanding officer of the ship to the exporter after the cargo is loaded on the slip. The mate’s receipt indicates the name of the vessel berth, date of shipment, description of packages, marks and number, Condition of the cargo at the time of receipt on board the ship etc. The shipping company does not issue the site of lading unless it receives the mate’s receipts.
11. What is a letter of credit? Why does an exporter need this document?
Ans: A letter of credit is a guarantee. Issued by the importer’s bank that it will honour up to a certain amount the payment of export bills to the bank of the exporter. It is needed for an exporter credit is the most appropriate and secure method of payment adopted to settle international transactions. So every exporter is to use this letter in foreign trade.
12. Discuss the process involved in securing payment for exports.
Ans: After the shipment of goods, the exporter informs the importer about the shipment of goods. The importer needs various documents to claim the title of goods on their arrival at his/her country and getting them customs cleared. The documents that are needed in this connection include certified copy of invoice, bill of lading, parking list, insurance policy, certificate of origin and letter of credit. The exporter sends these documents through his/her banker with the instruction that these may be delivered to the importer after acceptance of the bill of exchange-a document which is sent along with the above mentioned documents.
13. Differentiate between the following.
Ans: (a) Sight and usance drafts: Sight draft is a type of bill of exchange wherein the drawer of the bill of exchange instructs the banks to hand over the relevant documents to the importer only against payment.
On the other hand, usance draft is a type of bill of exchange wherein the drawer of the bill of exchange instructs the bank to hand over the relevant documents to the importer only against acceptance of the bill of exchanges.
(b) Bill of lading and airway bill: Bill of lading is a document prepared and signed by the master of the ship acknowledging the receipt of goods on board. It contains terms and conditions on which the goods are to be taken to the part of destination.
On the other hand, an airway bill is a document wherein an airline/ shipping company gives its official receipt of the goods on board its air craft and at the same time gives on undertaking. It is also a document of title to the goods and as such is freely transferable by the endorsement and delivery.
(c) Pre-shipment and post shipment finance: 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 part of shipment.
On the other hand, post-shipment finance needed for the transportation of goods fro ship to the business house, for store in warehouse etc.
14. Explain the meaning of the following documents used in connection with import transactions.
Ans: (i) Trade Enquiry: The first step in an import trade is to make trade enquiries. An enquiry is a written request from the intending buyer or his agent for information regarding prices and terms on which the exporter will be able to supply goods. The importer should mention in the enquiry all the details regarding the goods, such as goods required their description, catalogue number or grade, size, weight and quantity required. Similarly, the time and method of delivery, packing and also the terms and conditions of payment should also be indicated.
(ii) Import Licence: There are certain goods that can be imported freely, while other need licensing. The importer needs to consult the Export (EXIM) policy in force to Know whether the goods that he or she wants to import are subject to import licensing. In case goods can be imported only against the licence, the importer needs to procure import licence.
(iii) Shipment of advice: After loading the goods on the vessel, the overseas supplier dispatches the shipment advice to the importer. A shipment advice contains information about the shipment of goods. The information provided in the shipment advice includes details such as invoice mamber, fill of lading fairways bill number and date, the port of export, description of good and quantity and the date of sailing of vessel
(iv) 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.
(v) Bill of Entry: Bill of Entry is a form supplied by the customs office to the importer. It is to be filled in by the importer at the time of receiving the goods. It has to be in triplicate and is to be submitted to the customers office.
15. List out majors affiliated bodies of the world bank.
Ans: Major affiliated bodies of the world bank are:
(i) International Financial Corporation (IFC).
(ii) International Development Association (IDA).
(iii) Multilateral Investment Guarantee Agency (MIGA).
(iv) International Center for settlement of Investment Disputes (ICSID).
16. Write short Note on the following.
Ans: (a) Miga: The multinational investment Guarantee Agency was established in April 1988 to supplement the functions of the world Bank and IFC. The major objectives of MIGA are to encourage blow of direct foreign investment into the less developed member countries to provide insurance cover to investors against political risks and provide guarantee against non-commercial risks etc.
(b) World Bank: The World Bank was result of the Breton world conference. The main objective of the world Bank is to aid the task of reconstruction of the war-affected economics of Europe and assist in the development of the under developed nations of world. By investing more and more in the underdeveloped nations, especially in Social sectors like health and education it could bring about the needed social and economic transformation of the developing countries.
(c) ITPO: Indian Trade Promotion Organisation was setup on 1st January 1992 under the Companies Act. 1956 by the Ministry of Commerce Govt. of India. Its headquarter is situated a New Delhi.
ITPO was established by Combining two agencies such as Trade Development Authority and Trade Fair Authority of India. Basically ITPO is service organization and maintains regular and close interaction with trade, Industry and Government.
(d) IMF: International Monitary fund is the second International Organisation next to the world Bank. IMF which came into existence in 1945 has its headquarters located in Washington D. C. In 2005, it had 191 countries as its members. The major idea underlying the setting up of the IMF is to evolve an orderly international monetary system, i.e. facilitating system of international payments and adjustments in exchange rates among national currencies.
17. Rekha Garment has received an order to export 2000 men’s trousers to Swift Imports Itd. Located in Australia. Discuss the procedure that Rekha Garments would need to go through for executing in export order.
Ans: For executing the export order Rekha Garments is to follow the following stages:
(i) Assessing importer’s credit worthiness and securing a guarantee for payments: After receipt of the indent, the Rekha Garment is to make necessary enquiry about the credit worthiness of the importer. The purpose underlying the enquiry assess the risks of non-payment by the importer once the goods reach the import destination.
(ii) Obtaining export licence: In this step, the Rekha Garment is to fulfil the pre-requisites for getting an export licence as given below
Opening a bank account in any bank authorized by the Reserve Bank of India and getting an account number.
Obtaining import export code (IEC) number from the Directorate General foreign Trade (DGFT) or Regional import Export Licensing Authority.
Registering with appropriate export promotion council.
Registering with Export credit and Guarantee corporation (ECGC) in order to safeguard against risks of non-payments.
The Rekha Garments needs to have the import-Export Code (IEC) number as it needs to be filled in various export/import documents. For obtaining the IEC number the Rekha Garment is to apply the Director General for Foreign Trade (DGFT) with documents such as exporter/importer profile, bank receipt for requisite fee, certificate from the banker on the prescribed form, along with two copies of photographs.
(iii) Obtaining pre-Shipment finance: Once a confirmed order and also a letter of credit have been received, the exporter approaches his banker for obtaining pre-shipment finance to undertake export production.
(iv) Production or procurement of goods: In this step, Rekha Garment is to ready the goods as per the specification of importers. The Rekha Garment can produce good itself or can buys from the market.
(v) Pre-shipment finance: As per Government of India, the Rekha Garment is to ensure that only good quality products are exported. So, the this step such step is compulsory inspection of certain products by a competent agency as designated by the Government. In this connection, the Rekha Garment needs to contact the Export- Inspection Agency (EIA) or the other designated Agency for obtaining inspection certificate.
(vi) Excise clearance: In this step the Rekha Garment is to apply to the concerned excise Commissioner in the region with an invoice. If the excise commissioner is satisfied, the may issue excise clearance. But in many cases the Government exempts payment of excise duty or cater on refunds it if the goods to manufacture are meant for exports.
(vii) Obtaining certificate of origin: Some importing countries provide tariff concessions or other exemptions to the goods coming from a particular country. For availing such benefits the importer may ask the exporter to send certificate of origin. The Rekha Garment is to obtain this certificate from the trade consulate located in the exporter country.
(viii) Reservation of shipping space: In this step the Rekha Garment is to apply to the shipping company for provision of shipping space. The Rekha Garment is to specify the types of goods, to be exported, probable date of shipment and the port of destination.
(ix) Packing and forwarding: In this Step, the Rekha Garment is to arrange for parceling and transportation for forwarding the goods. On loading goods into the railway wagon, the railway authorities issue a railway receipt. Which serves as a title to the goods.
(x) Other Steps: In this step Rekha Garment is to arrange the following documents :
Insurance of goods, Customs clearance, Obtaining males receipt, Payment of freight and insurance of bill of lading, Preparation of Invoice.
After completion of all the above documents, the Rekha Garment can secure the payment.
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