NIOS Class 12 Business Studies Chapter 19 External Trade

NIOS Class 12 Business Studies Chapter 19 External Trade Solutions to each chapter is provided in the list so that you can easily browse throughout different chapters NIOS Class 12 Business Studies Chapter 19 External Trade and select need one. NIOS Class 12 Business Studies Chapter 19 External Trade Question Answers Download PDF. NIOS Study Material of Class 12 Business Studies Notes Paper 319.

NIOS Class 12 Business Studies Chapter 19 External Trade

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Also, you can read the NIOS book online in these sections Solutions by Expert Teachers as per National Institute of Open Schooling (NIOS) Book guidelines. These solutions are part of NIOS All Subject Solutions. Here we have given NIOS Class 12 Business Studies Chapter 19 External Trade, NIOS Senior Secondary Course Business Studies for All Chapter, You can practice these here.

External Trade

Chapter: 19

Module – 5 Trade

INTEXT QUESTIONS 19.1 

1. Mention any two reasons for ‘entrepot trade’. 

Ans: A country cannot import goods directly from others because of the following reasons: 

(i) Non-accessibility of Trade Routes: The exporting country may not have any accessible trade routes connecting the importing country. 

(ii) Processing/Finishing Required: The goods imported may require processing or finishing before exporting. And these facilities may be lacking in the exporting or importing countries.

2. How does external trade improve the standard of living of the people? 

Ans: On account of import trade, a country can consume goods, which it does not produce. On the other hand, it earns foreign exchange through export trade. The import and export trade thus helps in raising the standard of living of a country.

3. State whether there is Export trade, Import trade or ‘Entrepot trade’ in the following cases pertaining to India. 

(a) India purchased petroleum products from a foreign company. 

Ans: Import trade.

(b) USA sold Engineering products to India. 

Ans: Import trade.

(c) India bought goods from Russia and sold to Sri Lanka. 

Ans: Entrepot trade.

(d) UK bought jewellery/gold items/pearls from India. 

Ans: Export trade.

(e) Germany bought Telecom services from India.

Ans: Export trade.

INTEXT QUESTIONS 19.2 

1. How can a clearing agent help the importer? 

2. State any four difficulties faced by buyers and sellers in External trade.

Ans: The various difficulties, which are faced by the buyers and sellers engaged in external trade are described as follows: 

(a) Geographical Distance: External trade involves transport of goods over long distances, except for neighbouring countries. Distance between various countries makes it difficult to establish quick and close trade contact between the importers and exporters.

(b) More Risky in Nature: In external trade goods are exposed to greater degree of risk.Risk in transit of goods is more because of long distance.

(c) Difficulties of Transport and Communication: Long distances incidental to external trade create difficulties of proper and quick means of transport and communication.

(d) Legal and Custom Related Restrictions: External trade is subject to various restrictions by way of customs,tariff, quotas and exchange regulations, which restrict the scope of external trade.   

3. Match the following facilitations:

Ans:

INTEXT QUESTIONS 19.3 

1. Define ‘Letter of Credit’.

Ans: A letter of credit is issued by a bank of the importer’s country in favour of the foreign dealer. It contains an undertaking by the bank concerned that the bill of exchange drawn by the foreign dealer on the importer will be honoured on presentation to the extent of amount specified in it.  

2. Name the document referred to in each of the following cases. 

(a) Agreement signed with the shipping company to enable to put goods on the ship. ( ) 

Ans: Shipping order.

(b) Document issued by the captain of the ship after loading the goods on the ship. ( )

Ans: Mate’s Receipt.

(c) Assured payment on the strength of a document issued by the importer’s bank. ( )

Ans: Letter of credit. 

(d) Document which authorises the bank to sell the goods in case the ( ) bill is dishonoured. 

Ans: Letter of Hypothecation.

(e) Document received in exchange of Mate’s Receipt at the shipping office. ( )

Ans: Bill of Lading. 

INTEXT QUESTIONS 19.4 

1. Mention any three roles played by clearing agent in external trade.

Ans: Formalities to be Completed by the Clearing Agent:

(a) Endorsement for Delivery: When the ship arrives at the port, the clearing agent approaches the concerned shipping company and gets the bill of lading endorsed in his own name from the shipping company. If the freight has not been paid by the exporter, it will have to be paid before endorsement of the bill of lading. 

(b) Bill of Entry: The agent has to fill in and submit three copies of the bill of entry to the custom authority. The custom authority will calculate the duty and receive the same from the clearing agent. 

(c) Payment of Dock Charges: The agent has to complete and file two copies of Port Trust receipt and three copies of Bill of entry to the landing and shipping dues office. After receiving the dock charges, the dock authority will return one copy of Port Trust receipt and two copies of the Bill of entry to the agent. Then the agent has to submit this copy along with two copies of Bill of entry to the custom office.   

2. Answer the following questions: 

(a) Name the specific department of RBI that controls the foreign exchange transactions.

Ans: Exchange control department. 

(b) In import trade, who sends the letter of credit to whom?

Ans: Importer sends the letter of credit to the exporter.

(c) Who appoints the clearing agent? 

Ans: Importer.

(d) To whom is letter of advice forwarded by the clearing agent.

Ans: Importer. 

INTEXT QUESTIONS 19.5 

1. What is meant by Consular Invoice?

Ans: A consular invoice is a document specifying the contents and details of a shipment certified by the consul of the country the merchandise is being sent to. Customs officials use the invoice to confirm what’s in the shipment, the number of goods, and the cost—and thus determine the import duty. 

2. Arrange the following document in proper sequence. 

(a) Dock Receipt. 

(b) Dock Challan. 

(c) Dock Warrant.

Ans: (a) Dock challan. 

(b) Dock warrant.

(c) Dock Receipt. 

3. Answer the following in a word or phrase. 

(a) The document prepared by the master of the ship acknowledging the receipt of goods.

Ans: Bill of Lading.

(b) The document issued as a proof of the fact that goods have been produced in the country mentioned on it.

Ans: Certificate of origin. 

(c) The document forwarded by the exporter to the importer after the shipment of goods.

Ans: Export Invoice/Foreign Invoice. 

(d) The document issued by the dock authority after receiving the goods from the exporters.

Ans: Dock Receipt. 

(e) The document needed in sending goods by air.

Ans: Airway Bill. 

(f) Document which acts as a proof that goods of stated value and quantity are being brought into the country from abroad.

Ans: Bill of Entry.

Very Short Answer Questions: 

1. What is meant by External Trade? 

Ans: When buying and selling of goods take place across the national boundaries of different countries it is called External trade. It is also known as Foreign trade or International trade. They prefer to buy those products from the former. Thus, uneven distribution of natural resources and specialisation attained in production of certain items gives rise to exchange of goods and services between different countries. Such exchange is termed as “External Trade”. It is also known as Foreign Trade or International Trade.

2. Name the different types of External trade. 

Ans: On the basis of sale and purchase of goods and services, external trade can be divided into three kinds. 

These are: 

(a) Import trade. 

(b) Export trade. 

(c) Entrepot trade.

3. What is meant by Entrepot trade? 

Ans: When the firm of a country imports goods for the purpose of exporting the same to the firms of some other country with or without making any change, it is known as entrepot trade or re-export trade for that country. For example, if an Indian company imports rubber from Thailand and exports it to Japan then it is called Entrepot trade for India. 

4. Give two reasons for the importance of External trade. 

Ans: The importance of External trade are:

(a) Promotes Specialisation: External trade promotes specialisation. When there is expansion in the demand for a particular commodity, its producer is encouraged to specialise in its production.

(b) Improves Standard of Living: On account of import trade, a country can consume goods, which it does not produce. On the other hand, it earns foreign exchange through export trade. The import and export trade thus, help in raising standard of living in a country. 

5. Name any two promotion measures for Export trade.

Ans: (i) Duty drawback Scheme.

(ii) Deemed export benefits.

1. Explain ‘packing and marking’ of the goods in external trade.

Ans: Packing should be done strictly according to the instructions given in the indent. If loss arises due to defective packing, the exporter may have to bear it. If necessary, grading should be done before packing. The packages should be properly marked according to instructions, if any, so that they may be easily recognised. 

2. Explain the two alternative methods of payment to the exporter. 

Ans: (i) Letter of Credit: In external trade, the importer has to prove his creditworthiness to the exporter, who may demand a certain amount of deposit or even full payment of due price before the shipment of goods. For this purpose, the importer arranges with his bank for issuing a letter of credit in favour of the exporter.

(ii) Documentary Bill: When the documents of title to goods are sent along with the bill of exchange drawn by the exporter on the importer, it is called a documentary bill. It may be of two types (a) Documentary bill against payment (b) Documentary bill against acceptance. In case of documentary bill against payment, the documents of title to exported goods are delivered to the importer only when the importer has paid the amount specified in the bill of exchange. In case of documentary bill against acceptance, the documents of title to the exported goods are delivered to the importer after he has accepted the bill of exchange drawn by the exporter. 

3. What is meant by ‘Letter of Credit’?

Ans: A letter of credit is issued by a bank of the importer’s country in favour of the foreign dealer. It contains an undertaking by the bank concerned that the bill of exchange drawn by the foreign dealer on the importer will be honoured on presentation to the extent of amount specified in it. Thus, it establishes the credit-worthiness of the importer and guarantees payment of price to the exporter for the goods exported by him. 

 4. What are:

(i) Bill of Lading.

Ans: The forwarding agent has to present the mate’s receipt at the office of the shipping company and in exchange will get a document known as Bill of Lading. He has to fill in three blank forms of bills of lading giving details regarding the goods, destination, name of the ship, date and place of loading and name and address of the person to whom delivery is to be made. If the freight is paid in advance the bill of lading is marked ‘freight paid’. Otherwise it is marked ‘freight forward’ which means freight will be paid at the port of destination. 

(ii) Shipping order. and

Ans: In order to hire space in the ship, the exporter or his agent has to enter into an agreement with the shipping company. The shipping company on the conclusion of the agreement gives a shipping order, which contains instructions to the captain of the ship to receive on board the specified quantity of goods from the exporter.

(iii) Mate’s receipt.

Ans: When goods are brought to the docks for shipment, the document issued by the dock authority is known as a dock receipt. It is the duty of the dock authority to load the goods in the ship. But if goods are directly taken into the ship, the captain or his assistant (mate) gives a receipt as a proof of goods loaded in the ship. This receipt is known as Mate’s receipt. If the mate is not satisfied regarding the packing of goods, he issues a foul Mate’s receipt, otherwise he issues a clean Mate’s receipt.  

1. Explain the various measures taken up by the Government of India to facilitate exports. 

Ans: WTO has been playing an important role in facilitating and promoting international trade. 

The following points sum up the “Role of WTO”:

(i) WTO facilitates international business and promotes international peace. 

(ii) It has reduced trade and non-trade barriers in the conduct of international trade. 

(iii) WTO agreements have made international trade and relations very smooth and predictable.

(iv) Free trade improves the living standard of the people by increasing their income level. 

(v) Free trade provides ample scope of getting varieties of qualitative products. 

(vi) Economic growth has been speeded up because of free trade. 

(vii) WTO helps fostering growth of developing countries by providing them with special and preferential treatment in trade related matters. 

2. Discuss the various documents used in External Trade. 

Ans: The main documents which are used in external trade are discussed below: 

(i) Indent: It is an official order or requisition placed for import of goods. It is sent to the exporter for supply of goods. It contains full information regarding the goods to be imported i.e., quantity, quality, mode of packing and marking, period of delivery, mode of payment instructions regarding shipment and insurance, etc. 

(ii) Letter of Credit: In external trade, the importer has to prove his creditworthiness to the exporter, who may demand a certain amount of deposit or even full payment of due price before the shipment of goods. For this purpose, the importer arranges with his bank for issuing a letter of credit in favour of the exporter. 

(iii) Bill of Lading: It is a document prepared by the ship owner or by the master of the ship acknowledging the receipt of goods and undertaking to deliver the goods at the port of destination. This, on one hand, acts as a proof of the receipt of goods specified there in and on the other, is a document of title to the goods. 

(iv) Advice Letter: It is a document, which is prepared by the forwarding agent and sent to the exporter indicating that all the formalities for export of goods have been completed and goods have been shipped. Along with this letter, the forwarding agent sends a statement showing expenses incurred on the goods exported and his remuneration. Similarly, a letter of advice is also prepared by the clearing agent and sent to the importer stating that all the formalities for clearing the imported goods have been completed. 

(v) Documentary Bill: When the documents of title to goods are sent along with the bill of exchange drawn by the exporter on the importer, it is called a documentary bill. It may be of two types: (a) Documentary bill against payment. (b) Documentary bill against acceptance. In case of documentary bill against payment, the documents of title to exported goods are delivered to the importer only when the importer has paid the amount specified in the bill of exchange. 

(vi) Insurance Policy: The insurance policy is issued by the insurance company to cover the risks of loss or damage to goods due to specified causes. If there is no insurance then the loss will have to be borne by the owner of the goods, the exporter or importer. Under CIF (Cost Insurance Freight) contract, insurance is generally done by the exporter while under FOB (Free on Board) contract, insurance is done by the importer. 

(vii) Shipping Order: In order to hire space in the ship, the exporter or his agent has to enter into an agreement with the shipping company. The shipping company on the conclusion of the agreement gives a shipping order, which contains instruction to the captain of the ship to receive on board the specified quantity of goods from the exporter. 

(viii) Shipping Bill: The shipping bill is a document prepared by the exporter, or the forwarding agent on the basis of which the custom authority calculates the duty to be paid by the exporter. 

(ix) Mate’s Receipt: When goods are brought to the docks for shipment, the document issued by the dock authority is known as a dock receipt. It is the duty of the dock authority to load the goods in the ship. But if goods are directly taken into the ship, the captain or his assistant (mate) gives a receipt as a proof of goods loaded in the ship.This receipt is known as Mate’s receipt. If the mate is not satisfied regarding the packing of goods, he issues a foul Mate’s receipt, otherwise he issues a clean Mate’s receipt. 

(x) Dock Challan, Dock Warrant and Dock Receipt: The exporter has to fill up a form for the payment of dock charges. This form is known as ‘Dock Challan’. After paying the dock charges, a document is issued permitting the goods to be brought to the docks for loading. This document is known as Dock Warrant. After the goods are actually brought to the docks and handed over to the dock authority for loading in the ship, the document issued as a proof of delivery is known as Dock Receipt.

(xi) Consular Invoice: The exporter fills up a special invoice form mentioning all the particulars about the goods shipped and certifying the accuracy of the prices shown. This invoice is signed by the consul of the importer’s country stationed in the exporter’s country. This special invoice is known as Consular invoice. This document is obtained to avoid under and over invoicing as well as for easy clearance of goods by the custom authority at the importer’s country. 

(xii) Certificate of Origin: It is a document issued as a proof of the fact that the goods have been produced in the country mentioned on it, i.e., a certificate about the genuine origin of the goods exported. This document is issued on the basis of trade agreements between the countries in which they agree to levy lower rates of import duties on the goods produced by them. Some chambers of commerce are authorised to issue such certificates.

(xiii) Airway Bill: When goods, especially perishable ones, are sent to the importer by air, then this document is needed. It is a receipt given by the airline authority for the goods it is carrying. At the destination it has to be surrendered by the importer for releasing goods. It contains such information as name and address of exporter, name and address of importer or his agent, description of goods, number of packages, weight and volume of goods, rate of freight and total freight, airport of loading and destination, flight number and date, etc. 

(xiv) Export Invoice/Foreign Invoice: The foreign invoice is prepared by the exporter and he/she sends it to the importer after the shipment of goods. This invoice contains details such as the name of the ship, port of shipment, port of destination, number of indent, details regarding packing and marking, price of goods and other expenses including freight, dock dues and insurance charges. 

(xv) Bill of Entry: Bill of entry is a form to be filled up by the importer at the time of receiving the goods. It is a document based on which imported goods are cleared from the port. These are two types of bill of entry. 

(a) Bill of entry for Home Consumption: Where an importer wants to get his goods cleared in one lot, he has to present the bill of entry for home consumption. 

(b) Bill of entry for Warehousing: Where an importer wants to shift the goods to warehouse and thereafter get his goods cleared in small lots, he has to present the bill of entry for warehousing. The reason could be he is unable to pay duty on all goods in one instalment or because he has a storage problem.  

3. Advise Suresh, the procedure to import ball pens from Japan. 

Ans: To advise Suresh on the procedure to import ball pens from Japan, here’s a step-by-step guide:

(i) Research and Planning: If you are an active exporter considering a new export market, or re-assessing a current market, it is equally important to conduct this market research as conditions frequently change. For example, there could be different shipping costs, tariffs, and regulations affecting your business. 

(ii) Procuring the Shipping Documents: The importer will arrange to obtain necessary documents such as bill of lading, shipping bill, etc., after receiving the advice letter from the exporter. The documents are procured to take delivery of the goods. He has to go to the exporter’s bank to make payment in order to get the necessary documents for taking delivery of the goods.

(iii) Appointment of Clearing Agent: The importer may take delivery on his own or appoint an agent known as clearing agent, to take delivery of the goods. The importer sends necessary documents to his agent to clear the goods. The clearing agent charges commission for his services for clearing the goods. 

(iv) Advice to the Importer: The clearing agent has to write a letter of advice to the importer after despatch of goods. In this letter of advice, information regarding arrival of goods and their despatch by rail/road is specified. He has to enclose with it the railway receipt/carrier receipt and a statement of his expenses and charges. 

(v) Delivery of Goods from Railway/Transport Authority: The importer can take delivery of the goods from the railway or transport authority and carry them to his godown.   

4. Satish wants to export leather goods to Singapore. You are required to explain to him the procedure for the same. 

Ans: Students, do yourself.

5. Explain the need and importance of external trade to the Indian Economy.

Ans: The need and importance of external trade to the Indian economy are:

(a) Promotes Specialisation: External trade promotes specialisation. When there is expansion in the demand for a particular commodity, its producer is encouraged to specialise in its production. For example, there is demand of Japanese electronic goods all over the world. The result is that Japan’s efficacy and competency in this field has developed enormously. Similarly our country has specialised in tea, coffee and sugar production. 

(b) Improves Standard of Living: On account of import trade, a country can consume goods, which it does not produce. On the other hand, it earns foreign exchange through export trade. The import and export trade thus, help in raising standard of living in a country. 

(c) Enhances Competition: External trade enhances competition, which compels the domestic firms to improve technology of production, production process and quality of the products. It ultimately benefits the consumers in getting better quality products at competitive prices. It also provides a large variety of goods. 

(d) Generates Employment Opportunities: External trade facilitates the growth of agricultural, commercial as well as industrial activities, which in turn generates more and more employment opportunities for the people of country.

(e) Price Equalisation: External trade leads to equalisation of prices of goods and commodities in the world. Whenever the prices of commodities tend to rise because of short supply it can be checked by importing more goods. Similarly when the prices of products decline because of availability of excessive item, the country may export that surplus to other countries of the world. 

(f) International Relations: External trade brings the people of two different countries to come closer and to understand the need and requirement of each other. International trade leads to cultural and trade related exchanges. All these activities promote harmonious and cordial relations among the nations.

(g) Economic Growth: Economic growth of every country depends to a large extent on the volume of external trade. If a country specialises in any product, it needs to produce more to meet the worldwide demand. So, by producing and exporting more goods and services it can accelerate the economic growth of the country. 

(h) Efficient Utilisation of Natural Resources: External trade is a means through which the natural resources of various countries can be efficiently and properly utilised. For example, a country may be rich in minerals but due to lack of technological advancement it is not able to extract those minerals from the earth. So it can import modern equipments and machineries from advanced countries and make proper utilisation of those natural resources.