Prasanna

You can Download Internal Trade Questions and Answers, Notes, Plus One Business Studies Chapter Wise Questions and Answers Kerala Chapter 10 help you to revise complete Syllabus and score more marks in your examinations.

Kerala Plus One Business Studies Chapter Wise Questions and Answers Chapter 10 Internal Trade

1 Mark Questions and Answers

Question 1.
…….. is a trade that takes place between the people of the same nation.
Answer:
Internal trade (Home trade).

Question 2.
Buying goods in larger quantities from producers and selling them in smaller quantities to retailers is called.
Answer:
Wholesale trade.

Question 3.
……… is the last link in the channel of distribution of goods and services.
Answer:
Retailers.

Question 4.
…….. have close contact with consumers.
Answer:
Retailers.

Question 5.
…….. traders do not have a fixed place of business.
Answer:
Itinerant traders.

Question 6.
…….. carry goods on wheeled carts or on bicycles.
Answer:
Hawkers.

Question 7.
……. carry the products on the head or in baskets or shoulder bags.
Answer:
Pedlars.

Question 8.
Identify the following types of retailers and state two features for each type.
(a) Mohan sells fish on his bicycle.
(b) Anand sells toys, plastic, utensils, etc. in front of a shop on Sundays.
(c) Rajan sells old film magazines and other periodicals in pavements near a railway station.
Answer:

1. Hawkers
2. Market traders
3. Street traders

Question 9.
Identify the middleman – Manufacturer ………..?………… Retailer
Answer:
Wholesaler

Question 10.
Name the type of business.
Answer:

Hawkers

Question 11.
Wholesaler acts as a link between the manufacturer and …………….
Answer:
Retailers

Question 12.
Trade between Bangalore and Bombay is an example of …………… trade
(a) foreign trade
(b) home trade
(c) wholesale trade.
Answer:
(b) Home trade.

Question 13.
Identify the types of retailing business.
(a) Stores dealing with a particular line of goods like books, toys, etc.
(b) Stores dealing with a variety of goods of a particular brand.
(c) Stores dealing with a variety of goods of daily use.
(d) Selling goods on the pavement of a city.
(e) Stores selling used books or garments at a cheaper price.
Answer:

1. Single line store
2. Specialty store
3. General store or variety store
4. Itinerant retailing
5. Secondhand goods shop

Question 14.
Name the method of distribution in the following cases:
(a) The manufacturer approaches the customers directly.
(b) The marketing representative calls the customs over the telephone.
(c) Sale of goods and services by using the internet.
(d) Sale of goods through machines without any human intervention.
Answer:

1. Direct marketing
2. Telemarketing
3. Internet Marketing
4. Automatic vending machine

Question 15.
The shops which are owned by the same proprietor and located in different parts of the city or country are known as:
(a) Departmental store
(b) Super bazar
(c) Multiple shops
(d) Mail-order business
Answer:
(c) Multiple shops.

Question 16.
Which of the following is not an advantage of mail-order business?
(a) It required less capital.
(b) There is no risk of bad debts.
(c) It is not suitable for illiterates.
(d) Home delivery of goods is possible.
Answer:
(c)It is not suitable for illiterates.

Question 17.
It is a large scale retail organisation consisting of many departments each dealing in one item. Identify the type of organisation mentioned here.
Answer:
Departmental undertakings.

Question 18.
Find the odd one? Hawkers, cheap tacks, multiple shops, Street Traders.
Answer:
multiple shop.

Question 19.
“Absence of Salesman is one of the most important features of this shop”. Identify the shop and state it features.
Answer:
Supermarket.

Question 20.
“Post office is the channel through which a type of business is conducted”. Identify the business.
Answer:
Mail order business

Question 21.
Multiple shops are also known as ……………
Answer:
Chain stores.

Question 22.
Bata Shoe Company is an example of …………..
Answer:
Chain stores.

Question 23.
Supermarkets are also known as …………
Answer:
Self Service store

Question 24.
Bulky and perishable goods are not suitable for …………..
Answer:
Mail Order business.

Question 25.
Mail-order business is also known as …………….
Answer:
Shopping by post.

Question 26.
VPP means ……………..
Answer:
Value Payable Post.

Question 27.
“This is an agreement between the parent company and owner of an individual business unit”. Identify the category of retailers from the statement.
Answer:
Franchise.

2 Mark Questions and Answers

Question 1.
“Only the retailers know the pulse of the market” Do you agree? Justify your answer.
Answer:
Yes. Retailers have direct contact with consumers. So they can know the tastes and preferences of consumers. So a retailer occupies an important position in the distribution system.

Question 2.
a) Identify the following types of retailers.
b) State two features of such types of retailers.

1. Chandran is a street fruit seller.
2. Samuel sells vegetables in a wheeled cart.
3. Amar sells mangoes on Sundays at a weekly market.
4. Muneer sells goods by frequently changing the shop.

Answer:
a) Street traders
Features of street traders

1. These traders display their articles on busy streets, bus stand, railway stations, etc.
2. They sell low priced articles like pens, books, magazines, handkerchiefs, etc.

b) Hawkers
Features of Hawkers

1. Hawkers are traders who carry their products in wheeled carts or bicycles.
2. They deal with cheap and light articles like vegetables, fruits, toys, sweets, etc.

c) Market traders
Features of Market traders

1. These traders sell their articles on fixed days in different places.
2. They sell all kinds of goods like vegetables, ready-made garments, stationery, etc.

d) Cheap jacks
Features of Cheap jacks

1. They do not stick to a particular place of business.
2. They hire small shops located in residential areas and sell consumer items like fruits, vegetables, etc.

3 Mark Questions and Answers

Question 1.
Classify the following features under two heads departmental stores and multiple shops.
(a) Each shop deals with the same type of goods.
(b) A wide variety of products is available under one roof.
(c) There is uniformity in the shop’s design and layout.
(d) It aims at the elimination of middlemen.
(e) The products are arranged in separate departments.
(f) It deals in one or two lines of products.

4 Mark Questions and Answers

Question 1.
“These traders have no fixed place of business, but deal in articles of small value having high mobility”. Identify the category of traders and explain two types of such traders.
Itinerant traders.
a) Hawkers and Pedlars:
They deal in light and cheap consumer goods of regular use. Hawkers are traders who carry their products in wheeled carts or bicycles. But pedlars carry their products on their back or head or in shoulder bags. They deal in vegetables, fruits, sweets, toys, etc.

b) Market Traders:
These traders sell their articles on fixed days in different places. They sell all kinds of goods like vegetables, ready-made garments, stationery, etc.

Question 2.
“Such traders do not have fixed place of business”. Identify the type of retailers. Also, explain types of such retailers.
Answer:
Itinerant Retailers:
The retailers who do not have a fixed place of business to operate from are called itinerant retailers. They have to move from one place to another along with their goods in search of consumers.

Characteristics of itinerant retailers.

1. They are small traders having limited resources.
2. They generally deal with consumer products of daily use.
3. They emphasize on providing greater customer services.
4. They do not have any fixed place to operate from.

Types of itinerant retailers

1. Peddlers and hawkers:
They can the products on a bicycle, a hand cart, a cycle-rickshaw or on their heads, and move from place to place to sell their products at the doorstep of the customers. They generally deal with non-standardised and low- value products such as toys, vegetables, fruits, etc.

2. Market traders:
They are the small retailer who open their shops at different places and sell the goods on fixed days such as every Saturday or Tuesday. These trader deals in a single line of goods such as toys, ready-made garment crockery, etc.

3. Street traders:
These traders display their articles on busy streets, bus stand, railway stations, etc. They sell low priced articles like pens, books, magazines, handkerchiefs, etc. They do not change their place of business frequently.

4. Cheap jacks:
They are small retailers who have independent shops of a temporary nature in a business locality. They keep on changing their business from one locality to another but not very frequently. They deal with consumer items such as repair of watches, shoes, buckets, etc.

2. Fixed Shop Retailers:
Retailers who maintain permanent establishment to sell their goods are called fixed shop retailers. Following are the main characteristics of fixed shop retailers:

1. They have greater resources and operate on a relatively large scale.
2. They deal in durable as well as non-durable goods.
3. They provide greater services to the customers such as home delivery, repairs, credit facilities, etc.

Types of Fixed Shop Retailers
The fixed-shop retailers can be classified into two. They are:
(a) Small shop-keepers
(b) Large retailers

Question 3.

Answer:
Wholesaler
Functions of wholesalers :
(a) Wholesalers purchase, goods in large quantity from manufactures and sells them to retailers in small quantities.
(b) They store goods in their own warehouses
(c) They provide financial assistance to producers and retailers
(d) They make arrangements for the transportation of goods to the retailer’s shop
(e) They maintain a regular supply of goods. It stabilized the price.
(f) They give valuable information to producers and retailers regarding the product and market.

Question 4.
Explain the role of the Chamber of Commerce and Industry in the promotion of internal trade.
Answer:
Role of Chambers of Commerce and Industry in Promotion of Internal Trade.

Association of business and industrial houses are formed to promote and protect their common interest and goals. They undertake the following functions.

1. The chamber of commerce and Industry help in the inter-state movement of goods through various activities.
2. They ensure that the imposition of octroi and other local taxes do not affect trade adversely.
3. They also undertake marketing of agro products and related issues.
4. They interact with the Government to make laws relating to weights and measures and protection of brands.
5. They discuss with the government to get sound infrastructure so that business activities could be undertaken easily.

6 Mark Questions and Answers

Question 1.
A commerce teacher, while going through the topic, internal trade, cites the example of Bata shoe company, having its headquarters in Bombay has its showrooms at different locations of the city as well as various cities all over India. The products of the company carry the same price in all these showrooms.
b) Explain the features of these types of shops.
Answer:
Chain Stores or Multiple Shops
Multiple shop is a system of branch shops operated under centralised management and dealing in a similar line of goods. Branches are located throughout the nation.

Features of multiple shops

1. It deals in one or two lines of products.
2. All branches are dealing in similar goods
3. It has centralized management and a unified system of control
4. It eliminates middlemen.
5. It works on cash and carry the principle
6. It has centralized buying and decentralized selling.
7. There is uniformity in operation in all branches.
8. It deals with goods of daily use and durables.

Advantages

1. It enjoys economies of bulk purchase because the goods for all branches are purchased by head office.
2. There is no risk of bad debts because all sales are on a cash basis.
3. The advertisements for all branches are done by the head office. So there is an economy in the advertisement.
4. Multiple shops are located in towns and cities. They attract a large number of customers.
5. All branches of multiple shops are uniform in style, design, and display of goods.
6. All the branches sell quality goods at uniform prices. It creates public confidence.
7. The economy in large scale buying, centralized management, etc. reduces the cost of operations.
8. Products having no demand in one branch can be transferred to another branch. It reduces business risk.
9. Multiple shops enjoy the benefits of quick turn over because of countrywide location.

Limitations

1. The multiple shops deal only in a limited range of products. So consumers have very little choice.
2. They will not provide any credit facilities to consumers.
3. There is a lack of personal touch between the company and consumers because branches are managed by salaried managers.
4. The branch manager is only a salaried employee. He has no initiative to increase profits.
5. As these shops deal in a limited line of goods, a fall in demand will affect the business.

Question 2.
Alexander wants to deal with a particular commodity alone. He wants to have branches all over the country. Explain to him the suitable type of selling and also state its merits.
Answer:
Chain Stores or Multiple Shops
Multiple shop is a system of branch shops operated under centralised management and dealing in a similar line of goods. Branches are located throughout the nation.

Features of multiple shops

1. It deals in one or two lines of products.
2. All branches are dealing in similar goods
3. It has centralized management and a unified system of control
4. It eliminates middlemen.
5. It works on cash and carry the principle
6. It has centralized buying and decentralized selling.
7. There is uniformity in operation in all branches.
8. It deals with goods of daily use and durables.

Advantages

1. It enjoys economies of bulk purchase because the goods for all branches are purchased by head office.
2. There is no risk of bad debts because all sales are on a cash basis.
3. The advertisements for all branches are done by the head office. So there is an economy in the advertisement.
4. Multiple shops are located in towns and cities. They attract a large number of customers.
5. All branches of multiple shops are uniform in style, design, and display of goods.
6. All the branches sell quality goods at uniform prices. It creates public confidence.
7. The economy in large scale buying, centralized management, etc. reduces the cost of operations.
8. Products having no demand in one branch can be transferred to another branch. It reduces business risk.
9. Multiple shops enjoy the benefits of quick turn over because of countrywide location.

Limitations

1. The multiple shops deal only in a limited range of products. So consumers have very little choice.
2. They will not provide any credit facilities to consumers.
3. There is a lack of personal touch between the company and consumers because branches are managed by salaried managers.
4. The branch manager is only a salaried employee. He has no initiative to increase profits.
5. As these shops deal in a limited line of goods, a fall in demand will affect the business.

Question 3.
“Post office is the channel through which a type of business is conducted”.
(a) Identify the business. Explain.
(b) State its features, advantages and disadvantages.
Answer:
Mail Order Houses/shopping by Post

Mail-order business is a form of retailing where the business transactions are done through post or mail. Under this system orders for goods, delivery of goods and payment is made through VPP (Value Payable Post). Under this arrangement, the goods are delivered to the customers only on making full payment for the same. There is generally no direct personal contact between the buyers and the sellers in this type of trading.

This type of business is suitable for products that can be:

1. graded and standardised,
2. easily transported at low cost,
3. have ready demand in the market,
4. are available in large quantity throughout the year,
5. involve the least possible competition in the market.
6. can be described through pictures.

Bulky, heavy and perishable products are not suitable for this type of business.

Advantages

1. It needs only limited capital because there is no need for building and other infrastructural facilities.
2. Unnecessary middlemen between the buyers and sellers are eliminated.
3. Since the mail-order houses do not extend credit facilities to the customers, there are no chances of any bad debt.
4. Under this system, goods are delivered at the doorstep of the customers. This results in great convenience to the customers.
5. There is a wider scope for business.
6. It helps to avoid overstocking of goods as goods are collected only when the orders are received.

Disadvantages

1. It has to spend a large amount of advertisement.
2. There is no direct personal contact between the buyer and the seller.
3. The buyer cannot inspect the goods personally before purchasing.
4. They are not suitable for heavy and perishable goods.
5. They do not provide credit facilities to customers.
6. There may be a delay in getting goods.

Question. 4
Distinguish between Wholesalers and Retailers.
Answer:

Types of Retail Trade
Retail trade can be classified into the following two categories on the basis of whether or not they have a fixed place of business.
1. Itinerant Retailers
2.Fixed shop Retailers

Question 5.
Draw a chart showing the types of Retail Trade.
Answer:

8 Mark Questions and Answers

Question 1.
Raja Agencies of Trivandrum buys Honey Biscuits from a company located in Tamil Nadu and supply it to various shops in the district.
(a) You are required to trace out the nature of trade engaged in by the Raja Agencies.
(b) Discuss the various functions performed by them?
Answer:
Wholesale Trade:
Wholesale trade means buying goods in large quantities from the producers and selling them in smaller quantities to the retailers. Wholesalers act as an important link between manufacturers and retailers.

Functions of Wholesaler
1. Buying and assembling:
The wholesalers buy goods from different producers and keep them in a central place.

2. Warehousing:
The goods are to be kept in the I warehouses till they are sold to retailers.

3. Grading and packing:
The goods purchased are sorted out on the basis of quality and size. This is called grading. After grading they are packed in attractive packages.

4. Pricing:
The wholesaler fixes the price of products.

5. Transportation:
The wholesalers move the goods from the production centre to the retail shop.

6. Risk bearing:
They assume the risk like change in demand, spoilage, theft during transportation, etc.

7. Financing:
Wholesalers purchase goods on a cash basis from manufacturers and sell them to the retailers on a credit basis.

8. Market information:
Wholesalers collect various market information for the benefits of manufacturers so that they can change the products accordingly.

Services of Wholesalers to Manufacturers
1. Facilitating large scale production:
As the wholesalers place bulk orders, the producers are able to undertake production on a large scale and take advantage of economies of scale.

2. Risk bearing:
Wholesaler deals in goods in their own name and bears a variety of risks such as the risk of falls in prices, theft, pilferage spoilage, fire, etc.

3. Financial assistance:
Wholesalers provide financial assistance to the manufacturers by making cash payment for the purchased goods.

4. Expert advice:
Wholesaler provides various useful information regarding customer preference, market conditions, etc to the manufacturer.

5. Help in marketing function:
As the wholesalers place bulk orders, it relieves the producer from many marketing activities and he can concentrate on production.

6. Storage facilities:
Wholesalers hold the goods in their own warehouses. It reduces the burden of storage of goods by the manufacturers.

7. Facilitate production continuity:
The wholesalers facilitate continuity of production activity throughout the year by purchasing the goods as and when these are produced.

Services of Wholesalers to Retailers
1. Availability of goods:
The wholesalers make the products of various manufacturers readily available to the retailers.

2. Marketing support:
They undertake advertisements and other sales promotional activities to induce customers to purchase the goods.

3. Grant of credit:
The wholesalers generally provide credit facilities to the retailers.

4. Specialised knowledge:
Wholesalers know the pulse of the market. They inform the retailers about the new products, their uses, quality, prices, etc.

5. Risk sharing:
Wholesalers sell goods to retailers in small quantities and thus retailers do not face the risk of storage, pilferage, reduction in prices, etc.

Question 2.
Explain the functions of Retailers.
Answer:
Retail Trade
Buying goods in large quantities from the wholesalers and selling them in small quantities to the ultimate consumers is known as retail trade. Retailers serve as an important link between the producers and consumers in the distribution of products and services.

Functions of Retailers

1. A retailer collects different varieties of goods. So he can satisfy different types of customers.
2. A retailer provides market information to wholesalers and manufacturers.
3. A retailer is in close contact with consumers. So he can persuade the consumers to buy the product.
4. Retailers locate their business in residential areas. It helps the consumers to purchase the product easily.
5. The retailers provide credit facilities to the consumers.
6. Retailers provide after-sales services to attract consumers.

Services of Retailers to Manufacturers and Wholesalers

1. Retailers help manufacturers & wholesalers in the distribution of their goods & services to the ultimate consumers.
2. Retailers undertake personal selling efforts and thus, help manufacturers and wholesalers to increase the sale of the products.
3. Retailers help manufacturers and wholesalers to operate production on a large scale by undertaking the distribution of goods.
4. As retailers are in constant touch with customers, they can provide various market information such as the tastes, preferences, and attitudes, etc. of consumers to the producers.
5. Retailers participate in various sales promotional activities conducted by producers and wholesalers.

Services Retailers to Consumers

1. Retailers provide goods to consumers according to their requirements.
2. Retailers keep large varieties of products of different manufacturers. It enables customers to select goods according to their choice.
3. Retailers provide important information about the new products to the consumers.
4. Retailers also provide after-sales services in the form of home delivery etc. to the customers.
5. Retailers often supply goods on credit to the customers.
6. Retailers keep ready stock of the products needed by the consumers.

Question 3.
Explain the services rendered by retailers to consumers.
Answer:
Retail Trade
Buying goods in large quantities from the wholesalers and selling them in small quantities to the ultimate consumers is known as retail trade. Retailers serve as an important link between the producers and consumers in the distribution of products and services.

Functions of Retailers

1. A retailer collects different varieties of goods. So he can satisfy different types of customers.
2. A retailer provides market information to wholesalers and manufacturers.
3. A retailer is in close contact with consumers. So he can persuade the consumers to buy the product.
4. Retailers locate their business in residential areas. It helps the consumers to purchase the product easily.
5. The retailers provide credit facilities to the consumers.
6. Retailers provide after-sales services to attract consumers.

Services of Retailers to Manufacturers and Wholesalers

1. Retailers help manufacturers & wholesalers in the distribution of their goods & services to the ultimate consumers.
2. Retailers undertake personal selling efforts and thus, help manufacturers and wholesalers to increase the sale of the products.
3. Retailers help manufacturers and wholesalers to operate production on a large scale by undertaking the distribution of goods.
4. As retailers are in constant touch with customers, they can provide various market information such as the tastes, preferences, and attitudes, etc. of consumers to the producers.
5. Retailers participate in various sales promotional activities conducted by producers and wholesalers.

Services Retailers to Consumers

1. Retailers provide goods to consumers according to their requirements.
2. Retailers keep large varieties of products of different manufacturers. It enables customers to select goods according to their choice.
3. Retailers provide important information about the new products to the consumers.
4. Retailers also provide after-sales services in the form of home delivery etc. to the customers.
5. Retailers often supply goods on credit to the customers.
6. Retailers keep ready stock of the products needed by the consumers.

Question 4.
Explain the features, advantages, and disadvantages of departmental stores.
Answer:
Departmental stores:
A departmental store is a large scale retail shop selling a wide variety of goods in different departments under one and management. Each department deals in a separate line of goods like stationery, books, furniture, clothing, etc. Consumers can purchase all goods from the departmental store.

Features of a departmental store

1. It is a large scale retail organization.
2. A number of retail shops in the same building.
3. It offers a wide variety of products under one roof.
4. It is located at central places of the city
5. The products are arranged in separate departments
6. Sales, control, and management are centralized
7. It offers various services and facilities like free home delivery etc.

Advantages
1. Central locations:
As these stores are usually located in central places they attract a large number of customers.

2. Convenience in buying:
By offering a large variety of goods under one roof, the departmental stores provide great convenience to customers in buying almost all goods of their requirements in one place.

3. Attractive services:
A departmental store aims at providing maximum services to the customers.

4. Economy of large-scale operations:
As these stores are organised in a very large-scale, the benefits of large-scale operations are available to them.

5. Mutual advertisement:
All the departments are under one roof, so there is an economy in advertising.

6. Risk distribution:
If there is a loss in one department, it may be compensated for the profit of other departments.

7. Increased sales:
Central location, mutual advertisement, etc. will help a departmental store to increase its sales.

Limitations
1. Lack of personal attention:
Because of the large- scale operations, it is very difficult to provide adequate personal attention to the customers in these stores.

2. Inconvenient location:
As a departmental store is generally situated at a central location, it is not convenient for the consumers who reside away from town.

3. High price:
A departmental store charges a high price for the products because of high operating costs.

4. High operating cost:
As these stores give more emphasis on providing services, their operating costs tend to be high.

5. High advertisement cost:
The success and prosperity of a departmental store depends on advertisement. Therefore, it should spend a large amount on the advertisement.

6. Lack of effective control:
Departmental store works through a large number of departments. It creates so many problems.

7. High risk:
A departmental store keeps a large stock of goods. So changes in fashion, taste, price, etc will affect the profitability of the business.

Question 5.
Explain the features, advantages, and disadvantages of Consumers Co-operative store.
Answer:
Consumer Cooperative Store:
It is a retail store formed by the consumers on the basis of principles of co-operation. These stores are owned and managed by consumers. They deal all types of consumer goods.

Features of Consumers Co-operative

1. It is a voluntary association of consumers.
2. The liability of members is limited.
3. Consumers can purchase quality goods at the lowest cost from these stores.
4. Democratic control is exercised.
5. It eliminates middlemen.

Advantages

1. Consumers can purchase quality goods at the lowest cost from consumers’ co-operative store.
2. There are no bad debts as goods are sold on a cash basis.
3. Economies of large scale purchasing can be enjoyed.
4. Less advertisement expenses are required.
5. It restricts the monopoly and wasteful competition.

Disadvantages

1. A consumer co-operative store can collect low capital. So they cannot start a business on a large scale.
2. The management of a consumer co-operative store is inefficient.
3. It lacks proper warehousing facilities.
4. It will not attract consumers because of no credit facilities.

Question 6.
“Absence of salesman is one of the most important features of this shop”.
a) Identify the shop. Explain
b) State its features, advantages, and disadvantages.
Answer:
Super Markets / Super Bazaar:
Supermarket is a large scale retail organisation selling a wide variety of consumer goods. The important feature of the supermarket is the absence of a salesman to help consumers in selecting goods. Hence the supermarket is also called ‘ Self Service Store’.

Features of Super Market

1. They are located in the center of the town.
2. They sell goods on a cash basis only.
3. They deal with a wide variety of goods.
4. There is no salesman to help consumers.

Advantages

1. Consumers can purchase everything from supermarket
2. There is no bad debt as sales are on a cash basis only.
3. They are located in the centre of the town.
4. It attracts a large number of consumers.
5. Consumers can select goods according to their tastes and preferences.
6. A variety of goods is available in a supermarket.

Disadvantages

1. Large premises at a central location are not available easily.
2. It lacks personal advice of salesman
3. They do not provide credit facilities to customers.
4. The employees in a supermarket do not take initiative to increase sales.
5. It requires a huge capital investment.
6. It is not suitable for products which require personal selling.
7. There is no personal contact with consumers.

You can Download Forms of Business Organisation Questions and Answers, Notes, Plus One Business Studies Chapter Wise Questions and Answers Kerala Chapter 2 help you to revise complete Syllabus and score more marks in your examinations.

Kerala Plus One Business Studies Chapter Wise Questions and Answers Chapter 2 Forms of Business Organisation

1 Mark Questions and Answers

Question 1.
The structure in which there is a separation of ownership and management is called
(a) Sole proprietorship
(b) Partnership
(c) Company
(d) All business
Answer:
(c) Company

Question 2.
Write the name of the form of business organisation found only in India.
Answer:
Hindu Undivided Family

Question 3.
Name the type of Co. which must have a minimum paid-up capital of 5 lacs.
Answer:
Public Company

Question 4.
…… is the oldest and popular form of business organisation.
Answer:
Sole proprietorship

Question 5.
Profits do not have to be shared. This statement refers to ………
(a) Partnership
(b) Joint Hindu family business
(c) Sole proprietorship
(d) Company
Answer:
(c) Sole proprietorship

Question 6.
Quick decision, prompt action and business secrecy are the major features of this form of business. Name it.
Answer:
Sole proprietorship.

Question 7.
Mrs.Anupama is running a bookstall in the high school junction. She is the owner, manager and labourer of her business. She gives personal attention to each and every customer and attracts more customers and earns high profits. Identify the form of organization owned and operated by Mrs Anupama
Answer:
Sole proprietorship

Question 8.
The liability of a sole trader is ………
Answer:
Unlimited.

Question 9.
The maximum number of partners allowed in the banking business is:
(a) Twenty
(b) Ten
(c) No limit
(d) Two
Answer:
(b) Ten

Question 10.
The minimum number of partners required to form a partnership business is
(a) Twenty
(b) Ten
(c) No limit
(d) Two
Answer:
(d) Two

Question 11.
A partner whose association with the firm is unknown to the general public is called
(a) Active partner
(b) Sleeping partner
(c) Nominal partner
(d) Secret partner
Answer:
(d) Secret partner

Question 12.
Mr Isaac contributes capital to partnership business, but not takes part in business, what kind of partner he is?
Answer:
Sleeping partner

Question 13.
Identify the type of partners in the following situation:

1.  The liability of Sridhar, a 25 years old partner is limited to the extent of his capital contribution.
2. Madan has neither contributed any capital nor shares the profits of the firm though he is treated as a partner.
3. Sunita has been admitted to the benefits of the firm at the age of 15.
4. Sudhir had contributed to capital and shares the profit and loss of the firm. But he does not take part in the day-to-day activities.
5.  A firm declares that Sachin is a partner of their firm. Knowing the declaration Sachin did not disclaim it.

Answer:

1. Limited partner
2. Nominal Partner
3.  Minor partner
4. Sleeping Partner/dormant partner
5. Partner by holding out.

Question 14.
M, N and P are the partnership firm. In this firm ‘P’ contributes capital and take active part in business, while ‘R’ lends only his name and reputation. What type of partners are they?
Answer:
‘P’ is an active partner, ‘R’ is a nominal partner

Question 15.
Name the partner who shares the profits of the business without being liable for the losses.
Answer:
Partner in profit only

Question 16.
The maximum number of partners in a partnership firm except banking business is ……..
Answer:
20

Question 17.
The liability of partners in a partnership business is ………
Answer:
Unlimited

Question 18.
The written agreement of partnership is called ………..
Answer:
Partnership Deed

Question 19.
Partnership formed for the accomplishment of a particular project or for a specified time period is called ………
Answer:
Particular partnership.

Question 20.
Registration of a partnership is ………
Answer:
Optional

Question 21.
The Head of the joint Hindu family business is called
(a) Proprietor
(b) Director
(c) Karta
(d) Manager
Answer:
(c) Karta

Question 22.
The Karta in Joint Hindu family business has
(a) Limited liability
(b) Unlimited liability
(c) No liability for debts
(d) Joint liability
Answer:
(b) Unlimited liability

Question 23.
It is not formed by an agreement or by a contract. But it comes into existence by the operation of Hindu law. Name the type of business organisation.
Answer:
Hindu Undivided Family (HUF)

Question 24.
The members of a Joint Hindu Family business is known as …….
Answer:
Co-parceners.

Question 25.
The liability of all members in H.U.F is ……..
Answer:
Limited

Question 26.
In a Co-operative society, the principle followed is
(a) One share one vote
(b) One man one vote
(c) No vote
(d) Multiple votes
Answer:
(b) One man one vote

Question 27.
The main aim of this organization is self-help through mutual help. Identify the type of organizations.
Answer:
Co-operative Society

Question 28.
“Each for All and All for Each” is a basic motto of a form of business organization. Identify the organization.
Answer:
Co-operative society

Question 29.
Voting right in a cooperative society is based on the principle of …………
Answer:
One man one vote

Question 30.
The minimum number of persons to form a co-operative society is ……..
Answer:
10

Question 31.
The membership of a co-operative society is ……….
Answer:
Voluntary.

Question 32.
Registration of a Co-operative society is …….
Answer:
Compulsory

Question 33.
The liability of the members of a cooperative society is ………
Answer:
Limited

Question 34.
The capital of a company is divided into a number of parts each one of which is called …………
(a) Dividend
(b) Profit
(c) Interest
(d) Share
Answer:
(d) Share

Question 35.
Name the following in reference to a joint-stock company

1. The smallest unit into which the capital of the company is divided.
2. The Act that governs the joint-stock companies in India.
3. The sum total of the money contributed by the members of a joint-stock company.
4. The official signature of a joint-stock company.
5. The elected representatives of the members who manage the day to day affairs of the joint-stock company.

Answer:

1. Share
2. Companies Act 1956
3. Share capital
4. Common seal
5. Directors

2 Mark Questions and Answers

Question 1.
Compare the status of a minor in a Joint Hindu Family Business with that in a partnership.
Answer:
The basis of membership in the HUF business is birth in the family. Hence, minors can also be members of the business. His liability is limited. In a partnership firm, a minor can be admitted to the benefits of a partnership firm with the mutual consent of all other partners. In such cases, his liability will be limited to the extent of the capital contributed by him.

Question 2.
Sunny Joseph wants to start a private business. Tell him the different forms in which a private business can be organized.
Answer:
There are five forms of business enterprises in the private sector.They are:

1. Sole proprietorship
2. Joint Hindu Family Business
3. Partnership
4. Joint Stock Company
5. Co-operative Society

Question 3.
Name the form of business organisation where membership is acquired by birth. Explain any two features of such an organisation.
Answer:

1. Joint Hindu Family Business
2. Joint Hindu Family Business (HUF)

It refers to a form of organisation were in the business is owned and carried on by the members of a joint Hindu family. It is also known as Hindu Undivided Family Business (H.U.F). It is governed by the Hindu Succession Act, 1956. It is found only in India. The business is controlled by the head of the family who is the eldest member and is called Karta. All members have equal ownership right over the property of an ancestor and they are known as co-parceners.

Features

1. Formation:
For a Joint Hindu family business, there should be at least two members in the family and some ancestral property to be inherited by them.

2. Membership:
Membership by virtue of birth in the family.

3. Liability:
The Karta has unlimited liability. Every other coparcener has a limited liability up to his share in the HUF property.

4. Control:
The control of the family business lies with the Karta. He takes all the decisions and is authorised to manage the business.

5. Continuity:
The business is not affected by the death of the Karta as in such cases the next senior male member becomes the Karta.

6. Minor Members:
The basis of membership in the business is birth in the family. Hence, minors can also be members of the business.

Merits

1. Effective control:
The Karta has absolute decision making power. This avoids conflicts among members.

2. Continuity of business:
The death of the Karta will not affect the business as the next eldest member will then take up the position.

3. Limited liability of members:
The liability of all the co-parceners except the Karta is limited to their share in the business.

4. Increased loyalty:
Members are likely to work with dedication, loyalty and care because the work involves the family name.

Limitation

1. Limited capital:
The capital of HUF is limited since the ancestral property only can be used for the business. This reduces the scope for business growth.

2. Unlimited liability:
The liability of Karta is unlimited. His personal property can be used to repay business debts.

3. Dominance of Karta:
There is a possibility of differences of opinion among the members of the Joint Family. It may affect the stability of the business.

4. Limited managerial skills:
The Karta may not be an expert in all areas of management. It may affect the profitability of the business.

Question 4.
What is a Private Company?
Answer:
Private Company:-
A private company means a company which:

1. restricts the right of members to transfer its shares
2. has a minimum of 2 and a maximum of 50 members
3. does not invite public to subscribe to its share capital
4. must have a minimum paid-up capital of Rs.1 lakh It is necessary for a private company to use the word private limited after its name.

Question 5.
What is Public Company?
Answer:
Public Company
A public company means a company which is not a private company. As per the Indian Companies Act, a public company is one which:

1. has a minimum paid-up capital of Rs. 5 lakhs
2. has a minimum of 7 members and no limit on maximum members
3. can transfer its shares
4. can invite the public to subscribe to its shares. A private company which is a subsidiary of a public company is also treated as a public company. A public company must use the word limited after its name.

3 Mark Questions and Answers

Question 1.
Tristar Traders’ is a real estate partnership firm having partners viz. Haridas, Balakrishnan and Venny. They are equal partners. Due to ill health, Mr.Balakrishnan wants to retire from the business and he asks other partners to admit his 17-year-old son Mr.Renjith into partnership. Mr.Haridas and Mr.Venny agree to admit Mr.Renjith into the partnership.

1. Is it possible to admit Mr.Renjith into the partnership? Substantiate.
2. What type of partner is Renjith?

Answer:

1. Yes. It is possible to admit Renjith into partnership with the consent of all other partners.
2. Minor partner.

Question 2.
Explain the status of a minor in a partnership firm.
Answer:
A minor can be admitted to the benefits of a partnership firm with the mutual consent of all. other partners. In such cases, his liability will be limited to the extent of the capital contributed by him in the firm. He will not be eligible to take an active part in the management of the firm. A minor can share only the profits. He can inspect the accounts of the firm.

Question 3.
Mr. Unnikrishnan, a senior member, who looks after the family business, convened a meeting of the family members. He told that the firm is unable to pay its debts. So the personal property of all members must be made available for repaying the debts. All the members disagreed with the suggestion. As a commerce student what will be your opinion?
Answer:
The HUF business is governed by the law of succession. Here Mr. Unnikrishnan, a senior male member of the family runs the business. He is called Karta. The liability of the Karta is unlimited. But the liability of all other co-partners is limited. Only the personal property of the Karta can be used for the payment of business debts.

Question 4.
Distinguish between Private limited company and Public limited company.
Answer:
Difference between a public company and private company

4 Mark Questions and Answers

Question 1.
Mr.Jayan, still an unemployed youth, after two years of his post-graduation, decided to start a restaurant. In order to meet the capital requirements, he seeks his father’s help. His father agreed to give sufficient capital but asks him what prompted him to start this sort of a business. Jayan explains the essential factors he has considered for starting the restaurant.

1. Identify the business.
2. Explain the merits of the proposed business.

Answer:

1. Sole Proprietorship
2. Advantages of Sole Proprietorship

Sole proprietorship:
Sole proprietorship refers to a form of business organization which is owned, managed and controlled by an individual who is the recipient of all profits and bearer of all risks. It is the most common form of business organization.

Features

1. The sole trader is the single owner and manager of the business.
2. The formation of a sole proprietorship is very easy. There are no legal formalities to form and close a sole proprietorship.
3. The liability of a sole trader is unlimited, i.e. in case of loss, his personal properties can be used to pay the business liabilities.
4. The entire profit of the sole trading business goes to the sole proprietor. If there is any loss it is also to be borne by the sole proprietor alone.
5. The sole trader has full control over the affairs of the business. So he can take quick decisions.
6. A sole trading concern has no legal existence separate from its owner.
7. The death, insolvency etc. of a sole trader causes discontinuity of business.

Merits
1. Easy formation:-
The formation of a sole proprietorship is very easy. There are no legal formalities to form and close a sole proprietorship.

2. Quick Decision:
The sole trader has full control over the affairs of the business. So he can take quick decisions and prompt actions in all business matters.

3. Motivation:
The entire profit of the sole trading business goes to the sole proprietor. It motivates him to work hard.

4. Secrecy:
A sole trader can keep all the information related to business operations and he is not bound to publish the firm’s accounts.

5. Close Personal Relation :
The sole proprietor can maintain good personal contact with the customers and employees and thus, business runs smoothly.

Limitations
1. Limited capital:
A sole trader can start business only on a small scale because of limited capital.

2. Lack of Continuity:
Death, insolvency or illness of a proprietor affects the business and can lead to its closure.

3. Limited managerial ability:
A sole proprietor may not be an expert in every aspect of management.

4. Unlimited liability:
The liability of a sole trader is unlimited, i.e. in case of loss, his personal properties can be used to pay off the business liabilities.

5. Suitability:
Sole proprietorship is suitable in the following cases.

• Where the market is limited, localized and customers demand personalized services. Eg. tailoring, beauty parlour etc.
• Where goods are unstandardised like artistic jewellery.
• Where lower capital, limited risk & limited managerial skills are required as in case of retail store.

Question 2.
I am on the look for a few persons who are ready to invest both their skills and money because I believe collective efforts are more fruitful and least bothered about the extent of liability.

(a) What type of business organization is suitable for me?

(b) Explain the procedure in the formation of this business.

Answer:

(a) Partnership

(b) Registration of partnership

According to Indian Partnership Act 1932, registration of a partnership is not compulsory, it is optional. However, they can register with the Registrar of firms of the state in which the firm is situated.

Procedure for Registration:
1. Submission of application in the prescribed form to the Registrar of firms. The application should contain the following particulars:

• Name of the firm
• Location of the firm
• Names of other places where the firm carries on business
• The date when each partner joined the firm
• Names and addresses of the partners
• Duration of partnership.

This application should be signed by all the partners.
2. Deposit of required fees with the Registrar of Firms.

3. The Registrar after approval will make an entry in the register of firms and will subsequently issue a certificate of registration.

The consequences of non-registration of a firm are as follows : –

1. A partner of an unregistered firm cannot file suit against the firm or other partner.
2. The firm cannot file a suit against the third party.
3. The firm cannot file a case against its partner.

Question 3.
Certain companies cannot issue an invitation to the public to subscribe to its shares. The maximum shareholders of the company is limited to 50. The transfer of shares of the company is restricted.

(a) Identify the type of company.

(b) Explain the privileges enjoyed by these types of companies.

Answer:
(a) Private Company

(b) Privileges of a private company

1. A private company can be formed by only two members.
2. There is no need to issue a prospectus
3. Allotment of shares can be done without receiving the minimum subscription.
4. A private company can start business as soon . as it receives the certificate of incorporation.
5. A private company needs to have only two directors.
6. A private company is not required to keep an index of members.
7. There is no restriction on the amount of loans to directors in a private company.

5 Mark Questions and Answers

Question 1.
Arun, Nisha and Lekshmi, entered into an agreement for starting a supermarket – ‘Mythri’. The other terms and conditions of the business were. mentioned in their deed. While having an official meeting of the partners, Nisha and Lekshmi suggested that the firm should be registered. But Arun contented that, it is not essential to register Mythri. The other two partners disagreed with Arun and maintained that it is essential because they don’t want to bear the consequences. As an expert in this topic,
(a) Whom do you favour? Specify your reasons in support of your judgement.

(b) In your opinion, is there any consequences, if Mythri is not registered. Explain.

Answer:
a) Arun. It is not compulsory to register a partnership firm,

(b) Registration of partnership
According to Indian Partnership Act 1932, registration of a partnership is not compulsory, it is optional. However, they can register with the Registrar of firms of the state in which the firm is situated.

Procedure for Registration:

1. Submission of application in the prescribed form to the Registrar of firms. The application should contain the following particulars:

• Name of the firm
• Location of the firm
• Names of other places where the firm carries on business
• The date when each partner joined the firm
• Names and addresses of the partners
• Duration of partnership.

This application should be signed by all the partners.
2. Deposit of required fees with the Registrar of Firms.

3. The Registrar after approval will make an entry in the register of firms and will subsequently issue a certificate of registration.

The consequences of non-registration of a firm are as follows : –

1. A partner of an unregistered firm cannot file suit against the firm or other partner.
2. The firm cannot file a suit against the third party.
3. The firm cannot file a case against its partner.

Question 2.
Name the following in reference to a joint-stock company.

1. The smallest unit into which the capital of the company is divided.
2. The Act that governs the joint-stock companies in India.
3. The sum total of the money contributed by the members of a joint-stock company.
4. The official signature of a joint-stock company.
5. The elected representatives of the members who manage the day to day affairs of the joint-stock company.

Answer:

1. Share
2. Companies Act 1956
3. Share capital
4. Common seal
5. Directors

6 Mark Questions and Answers

Question 1.
Distinguish between Joint Stock Company and Partnership.
Answer:

Partnership Firm Joint Stock Company
1. Formed by an agreement Formed by registration
2. Governed by Partnership Act 1932 Governed by the Companies Act 1956
3. Registration is optional Registration is compulsory
4. It has no separate legal existence It has separate legal existence
5. It does not possess continuous existence It has perpetual existence
6. Minimum number of persons required is two Minimum number of persons required is seven (2 in Private company)
7. The liability of partners is unlimited The liability of shareholders is limited
8. All partners can take part in the management All shareholders cannot take part in the management

Question 2.
Discuss the factors that determine the choice of form of organisation.
Answer:
Choice of business organisation
The important factors determining the choice of organization are:-

1. Cost and Ease of formation:-
From the point of view of cost, sole proprietorship is the preferred form as it involves least expenditure and the legal requirements are minimum. Company form of organisation is more complex and involves greater costs.

2. Liability:-
In case of sole proprietorship and partnership firms, the liability of the owners/ partners is unlimited. In cooperative societies and companies, the liability is limited. Hence, from the point of view of investors, the company form of organisation is more suitable as the risk involved is limited.

3. Continuity:
The continuity of sole proprietorship and partnership firms is affected by death, insolvency or insanity of the owners. However, such factors do not affect the continuity of cooperative societies and companies. In case the business needs a permanent structure, company form is more suitable.

4. Management ability:
If the organisation’s operations are complex in nature and require professionalized management, company form of organisation is a better alternative.

5. Capital:
If the scale of operations is large, company form may be suitable whereas for medium and small-sized business one can opt for partnership or sole proprietorship.

6. Degree of control:
If direct control over business and decision making power is required, proprietorship may be preferred. But if the owners do not mind sharing control and decision making, partnership or company form of organisation can be adopted.

7. Nature of business:
If direct personal contact is needed with the customers, Sole proprietorship may be more suitable. Otherwise, the company form of organisation may be adopted.

8 Mark Questions and Answers

Question 1.
Prepare a seminar report on the merits of the Joint Stock Company form of business.
Answer:
Joint Stock company
A company may be defined as a voluntary association of persons having a separate legal entity, with perpetual succession and a common seal. It is an artificial person created by law. The companies in India are governed by the Indian. Companies Act, 1956.

The capital of the company is divided into smaller parts called ‘shares’ which can be transferred freely, (except in a private company). The shareholders are the owners of the company. The company is managed by Board of Directors, elected by shareholders.

Features
1. Incorporated association:
A company is an incorporated association, i.e. Registration of a company is compulsory under the Indian Companies Act, 1956.

2. Separate legal entity:-
A company is an artificial person created by law. Company has a separate legal entity apart from its members. It can enter into contracts, own property, sue and be sued, borrow and lend money etc.

3. Formation:-
The formation of a company is a time consuming, expensive and complicated process.

4. Perpetual succession:-
A company has a continuous existence. Its existence not affected by death, insolvency or insanity of shareholders. Members may come and go, but the company continues to exist.

5. Control:-
The management and control of the affairs of the company is in the hands of Board of directors who are elected the representatives of the shareholders.

6. Liability:-
The liability of the shareholders is limited to the extent of the face value of shares held by them.

7. Common seal:
The Company being an artificial person acts through its Board of Directors. All documents issued by the company must be authenticated by the company seal.

8. Transferability of shares:-
Shares of a joint-stock company are freely transferable except in case of a private company.

Merits

1. Limited liability:- The liability of the shareholders is limited to the extent of the face value of shares held by them. This reduces the degree of risk borne by an investor.
2. Transferability of shares:- Shares of a public company are freely transferable. It provides liquidity to the investor.z
3. Perpetual existence:- A company has a continuous existence. Its existence not affected by death, insolvency or insanity of shareholders.
4. Scope for expansion:- A company has large financial resources. So it can start business on a large scale.
5. Professional management: A company can afford to pay higher salaries to specialists and professionals. This leads to greater efficiency in the company’s operations.
6. Public confidence:- A company must publish its audited annual accounts. So it enjoys public confidence.

Limitations

1. Difficulty information:-
The formation of a company is very difficult. It requires greater time, effort and extensive knowledge of legal requirements.

2. Lack of secrecy:-
It is very difficult to maintain secrecy in case of a public company, a  company is required to publish its annual accounts and reports.

3. Impersonal work:-
It is difficult for the owners and top management to maintain personal contact with the employees, customers and creditors.

4. Numerous regulations:-
The functioning of a company is subject to many legal provisions and compulsions. This reduces the freedom of operations of a company.

5 Delay in decision making:-
A company takes important decisions by holding company meetings. It requires a lot of time.

6. Oligarchic management:-
Theoretically a company is democratically managed but actually it is managed by few people, i.e board of directors. The Board of Directors enjoy considerable freedom in exercising their power which they sometimes ignore the interest of the shareholders.

7. Conflict in interests:-
There may be a conflict of interest amongst various stakeholders of a company. It affects the smooth functioning of the company.

8. Lack of motivation:-
The company is managed by a board of directors. They have little interest to protect the interest of the company.

Types of Companies
A company can be either a private or a public company.

Question 2.
Mrs.Sheela is running a Ladies Beauty Parlour in Calicut City. She is the owner, manager and labourer of her business.
a) What form of organisation Mrs.Sheela owns.

b) State its merits and demerits.
Answer:
a) Sole Proprietorship

(b) Sole proprietorship:
Sole proprietorship refers to a form of business organization which is owned, managed and controlled by an individual who is the recipient of all profits and bearer of all risks. It is the most common form of business organization.

Features

1. The sole trader is the single owner and manager of the business.
2. The formation of a sole proprietorship is very easy. There are no legal formalities to form and close a sole proprietorship.
3. The liability of a sole trader is unlimited, i.e. in case of loss, his personal properties can be used to pay the business liabilities.
4. The entire profit of the sole trading business goes to the sole proprietor. If there is any loss it is also to be borne by the sole proprietor alone.
5. The sole trader has full control over the affairs of the business. So he can take quick decisions.
6. A sole trading concern has no legal existence separate from its owner.
7. The death, insolvency etc. of a sole trader causes discontinuity of business.

Merits

1. Easy formation:-
The formation of a sole proprietorship is very easy. There are no legal formalities to form and close a sole proprietorship.

2. Quick Decision:
The sole trader has full control over the affairs of the business. So he can take quick decisions and prompt actions in all business matters.

3. Motivation:
The entire profit of the sole trading business goes to the sole proprietor. It motivates him to work hard.

4. Secrecy:
A sole trader can keep all the information related to business operations and he is not bound to publish the firm’s accounts.

5. Close Personal Relation :
The sole proprietor can maintain good personal contact with the customers and employees and thus, business runs smoothly.

Limitations
1. Limited capital:
A sole trader can start business only on a small scale because of limited capital.

2. Lack of Continuity:
Death, insolvency or illness of a proprietor affects the business and can lead to its closure.

3. Limited managerial ability:
A sole proprietor may not be an expert in every aspect of management.

4. Unlimited liability:
The liability of a sole trader is unlimited, i.e. in case of loss, his personal properties can be used to pay off the business liabilities.

5. Suitability:
Sole proprietorship is suitable in the following cases.

• Where the market is limited, localized and customers demand personalized services. Eg. tailoring, beauty parlour etc.
• Where goods are unstandardised like artistic jewellery.
• Where lower capital, limited risk & limited managerial skills are required as in case of retail store.

Question 3.
Mr.Firoz, a graduate wants to start a business but on certain conditions –

1. He does not want to go through a lot of legal formalities.
2. He does not care to have unlimited liability.
3. He does not bother admitting partners in his business.

• Considering these factors, suggest a form of business suitable to Mr.Firoz.
• Explain its merits and demerits.

Answer:

1. Partnership
2. Partnership
   The Indian Partnership Act, 1932 defines partnership as “the relation between persons who have agreed to share the profit of the business carried on by all or any one of them acting for all.”

Features
1. Formation:-
For the formation of a partnership, agreement between partners is essential.

2. Liability:-
The partners of a firm have unlimited liability. The partners are jointly and individually liable for the payment of debts.

3. Risk bearing:
The profit or loss shall be shared among the partners equally or in agreed ratio.

4. Decision making and control:-
The activities of a partnership firm are managed through the joint efforts of all the partners.

5. Lack of Continuity:-
The retirement, death, insolvency, insanity etc of any partner brings the firm to an end.

6. Membership:-
There must be at least two persons to form a partnership. The maximum number of persons is ten in the banking business and twenty in non-banking business.

7. Mutual agency:-
In partnership, every partner is both an agent and a principal.

Merits of Partnership

1. Easy formation and closure:-
A partnership firm can be formed and closed easily without any legal formalities.

2. Balanced decision making:-
In partnership, decisions are taken by all partners. So they can take better decisions regarding their business.

3. Division of labour:-
Division of labour is possible in partnership firm. Duties can be assigned to different partners according to their ability.

4. Large funds:-
In a partnership, the capital is contributed by a number of partners. So they can start business on a large scale.

5. Sharing of risk:-
The risks involved in running a partnership firm are shared by all the partners. This reduces the anxiety, burden and stress on individual partners.

6. Secrecy:-
A partnership firm is not legally required to publish its accounts and submit its reports. Hence it can maintain confidentiality of information relating to its operations.

Limitations of Partnership

1. Unlimited liability:-
The partners of a firm have unlimited liability. The partners are jointly and individually liable for the payment of debts.

2. Limited resources:-
There is a restriction on the number of partners. Hence capital contributed by them is also limited.

3. Possibility of conflicts:-
Lack of mutual understanding and co-operation among partners may affect the smooth working of the partnership business.

4. Lack of continuity:-
The retirement, death, insolvency, insanity etc of any partner brings the firm to an end.

5. Lack of public confidence:-
A partnership firm is not legally required to publish its financial reports. As a result, the confidence of the public in partnership firms is generally low.

Question 4.
“A Company is an artificial person created by law”. Based on the above statement, explain the features of a Joint Stock Company.
Answer:
Joint Stock company
A company may be defined as a voluntary association of persons having a separate legal entity, with perpetual succession and a common seal. It is an artificial person created by law. The companies in India are governed by the Indian. Companies Act, 1956.

The capital of the company is divided into smaller parts called ‘shares’ which can be transferred freely, (except in a private company). The shareholders are the owners of the company. The company is managed by Board of Directors, elected by shareholders.

Features
1. Incorporated association:
A company is an incorporated association, i.e. Registration of a company is compulsory under the Indian Companies Act, 1956.

2. Separate legal entity:-
A company is an artificial person created by law. Company has a separate legal entity apart from its members. It can enter into contracts, own property, sue and be sued, borrow and lend money etc.

3. Formation:-
The formation of a company is a time consuming, expensive and complicated process.

4. Perpetual succession:-
A company has a continuous existence. Its existence not affected by death, insolvency or insanity of shareholders. Members may come and go, but the company continues to exist.

5. Control:-
The management and control of the affairs of the company is in the hands of Board of directors who are elected the representatives of the shareholders.

6. Liability:-
The liability of the shareholders is limited to the extent of the face value of shares held by them.

7. Common seal:
The Company being an artificial person acts through its Board of Directors. All documents issued by the company must be authenticated by the company seal.

8. Transferability of shares:-
Shares of a joint-stock company are freely transferable except in case of a private company.

Merits

1. Limited liability:-
The liability of the shareholders is limited to the extent of the face value of shares held by them. This reduces the degree of risk borne by an investor.

2. Transferability of shares:-
Shares of a public company are freely transferable. It provides liquidity to the investor.

3. Perpetual existence:-
A company has a continuous existence. Its existence not affected by death, insolvency or insanity of shareholders.

4. Scope for expansion:-
A company has large financial resources. So it can start business on a large scale.

5. Professional management:
A company can afford to pay higher salaries to specialists and professionals. This leads to greater efficiency in the company’s operations.

6. Public confidence:-
A company must publish its audited annual accounts. So it enjoys public confidence.

Limitations

1. Difficulty information:-
The formation of a company is very difficult. It requires greater time, effort and extensive knowledge of legal requirements.

2. Lack of secrecy:-
It is very difficult to maintain secrecy in case of public company, as a company is required to publish its annual accounts and reports.

3. Impersonal work:-
It is difficult for the owners and top management to maintain personal contact with the employees, customers and creditors.

4. Numerous regulations:-
The functioning of a company is subject to many legal provisions and compulsions. This reduces the freedom of operations of a company.

5 Delay in decision making:-
A company takes important decisions by holding company meetings. It requires a lot of time.

6. Oligarchic management:-
Theoretically a company is democratically managed but actually it is managed by few people, i.e board of directors. The Board of Directors enjoy considerable freedom in exercising their power which they sometimes ignore the interest of the shareholders.

7. Conflict in interests:-
There may be a conflict of interest amongst various stakeholders of a company. It affects the smooth functioning of the company.

8. Lack of motivation:-
The company is managed by a board of directors. They have little interest to protect the interest of the company.

Types of Companies
A company can be either a private or a public company.

Question 5.
Briefly, explain different types of co-operative society.
Answer:
Types of co-operative society
1. Consumer’s cooperative societies:-
The consumer cooperative societies are formed to protect the interests of consumers. The society aims at eliminating middlemen to achieve economy in operations. It purchases goods in bulk directly from the wholesalers and sells goods to the members at the lowest price.

2. Producer’s cooperative societies:-
These societies are set up to protect the interest of small producers. It supplies raw materials, equipment and other inputs to the members and also buys their output for sale.

3. Marketing cooperative societies:-
Such societies are established to help small producers in selling their Products. It collects the output of individual members and sell them at the best possible price. Profits are distributed to members.

4. Farmer’s cooperative societies:-
These societies . are established to protect the interests of farmers by providing better inputs at a reasonable cost. Such societies provide better quality seeds, fertilisers, machinery and other modern techniques for use in the cultivation of crops.

5. Credit cooperative societies:-
Credit cooperative societies are established for providing easy credit on reasonable terms to the members. Such societies provide loans to members at low rates of interest.

You can Download International Business – I Questions and Answers, Notes, Plus One Business Studies Chapter Wise Questions and Answers Kerala Chapter 11 help you to revise complete Syllabus and score more marks in your examinations.

Kerala Plus One Business Studies Chapter Wise Questions and Answers Chapter 11 International Business – I

1 Mark Questions and Answers

Question 1.
In which of the following modes of entry, does the domestic manufacturer give the right to use intellectual property such as patent and trademark to a manufacturer in a foreign country for a fee.

a) Licensing
b) Contract manufacturing
c) Joint venture
d) None of these
Answer:
a) Licensing

Question 2.
Outsourcing a part of or entire production and concentrating on marketing operations in international business is known as
a) Licensing
b) Franchising
c) Contract manufacturing
d) Joint venture
Answer:
c) Contract manufacturing

Question 3.
When two or more firms come together to create a new business entity that is legally separate and distinct from its parents. It is known as
Answer:
Joint venture

Question 4.
Which one of the following modes of entry requires a higher level of risks?
Answer:
Joint venture

Question 5.
Which one of the following modes of entry permits the greatest degree of control over overseas operations?
Answer:
Wholly owned subsidiary

Question 6.
Which one of the following modes of entry brings the firm closer to international market.
Answer:
Licensing/Franchising

Question 7.
Buying and selling of goods and services between the two countries are called……….
Answer:
Foreign trade

2 Mark Questions and Answers

Question 8.
Differentiate between international trade and international business.
Answer:
International trade consists of imports and exports of goods. But international business is a much broader term and is comprised of both the trade and production of goods and services across the countries.

Question 9.
Distinguish between licensing and franchising.
Answer:
Licensing is used in connection with the production and distribution of goods. But the term franchising is used in connection with service business. Franchising is relatively more stringent than licensing.

4 Mark Questions and Answers

Question 10.
Enumerate limitations of contract manufacturing.
Answer:
Mode of Entry into International Business

1. Exporting and Importing:
When goods are sold to a foreign country, it is called export trade. When goods are purchasing from a foreign country, it is called import trade.

Advantages

• It is the easiest way of gaining entry into international markets.
• Business firms are not required to invest that much time and money in host countries.
• It is less risky as compared to other modes of. entry into international business

Limitations

• It involves additional packaging, transportation, and insurance costs.
• Exporting is not possible in case the foreign country restricts imports.
• The export firms do not have much contact with the foreign markets.

2. Contract Manufacturing (Outsourcing):
When a firm enters into a contract with one or a few local manufacturers in foreign countries to get certain goods produced as per its specifications it is called contract manufacturing. It is also known as outsourcing and it can take place in the following forms.

• Production of certain components
• Assembly of components into final products
• Complete manufacture of the products

Advantages

• It Permits international firms to get the goods produced on a large scale without requiring investment in setting up production facilities.
• There is no investment risk involved in foreign countries.
• It helps to get the products at lower cost
• Local producers in foreign countries can ensure greater utilization of their idle production capacities.

Limitations

• It may affect the quality of the products.
• Local manufacturer in the foreign country loses his control over the manufacturing process because goods are produced strictly as per the terms and specifications of the contract.
• The local firm cannot sell the contracted output as per their will.

3. Licensing and Franchising:
Licensing is a contractual arrangement in which one firm grant access to its patents, trade secrets or technology to another firm in a foreign country for a fee called royalty. The firm that grants permission is known as licensor and the firm that receives the right to use technology or patents is called the licensee.

Franchising is similar to licensing. But it is used in connection with the provision of services. The parent company is called the franchiser and the other party to the agreement is called franchisee.

Advantages

• It is a less expensive mode of entering into international business.
• There is no investment risk
• Since the business in a foreign country is managed by the licensee/franchisee who is a local person, there are lower risks of business takeovers or government interventions.
• Since licensee/franchisee is a local person, he has greater market knowledge and customer contacts. It helps the licensor/franchiser in successfully conducting its marketing operations.

Limitations

• The licensee can start marketing an identical product under a slightly different brand name.
• Trade secrets may lose in foreign markets.
• Conflicts often develop between the licensor/ franchiser and licensee/franchisee over issues such as maintenance of accounts, payment of royalty, etc.

4. Joint Ventures:
Joint venture means establishing a firm that is jointly owned by two or more independent firms. It can be brought into existence in three major ways.

• Foreign investors buying an interest in a local firm.
• Local firms acquiring an interest in an existing foreign firm.
• Both the foreign and local entrepreneurs jointly forming a new enterprise.

Advantages

• Since the local partner also contributes to the equity capital, the international firm has less financial burden to expand the business globally.
• It helps to execute large projects requiring huge capital outlays and manpower.
• The foreign business firm benefits from local partner’s knowledge of the host countries.
• The foreign business firm shares costs and risks with local partners. So they can enter into the foreign markets very easily and without high risk.

Limitations

• Foreign firms entering into joint ventures share the technology and trade secrets with local firms. It leads to leakage of technology and secrets to others.
• The dual ownership arrangement may lead to conflicts

5. Wholly Owned Subsidiaries:
The parent company (holding company) acquires full control over the foreign company by making 100% investment in its equity capital. It is called wholly-owned subsidiaries. It can be established in either of the two ways. i.e.

• Setting up a new firm altogether to start operations in a foreign country.
• Acquiring an existing firm in the foreign country.

Advantages

• The parent firm is able to exercise full control over its operations in foreign countries.
• It is not required to disclose its technology or trade secrets to others.

Limitations

• It is not suitable for small and medium-size firms which do not have enough funds to invest abroad.
• The parent company alone has to bear the entire losses.
• It is subject to higher political risk.

5 Mark Questions and Answers

Question 11.
Sri. Swamynathan, a pure Gandhian, is of the view that India should never go for international trade for it results in draining out of scarce resources, dampen the domestic trade and this will lead to the complete destruction of our nation. How do you evaluate Mr. Swamynathan’s statement?
Answer:
Benefits of International Business:
The benefits of international business to the nations and business firms are:

Benefits to Nations
1. Earning of foreign exchange:
It helps a country to earn foreign exchange which can be used for importing capital goods, technology, petroleum products, and fertilisers, pharmaceutical products, etc.

2. More efficient use of resources:
External trade enables a country to utilize the available resources in the best possible manner.

3. Improving growth prospects and employment potentials:
External trade helps to accelerate the economic growth and employment opportunities of a country.

4. Increased standard of living:
Foreign trade helps in raising the standard of living of a country.

5. International relation:
External trade helps to promote harmonious and cordial relationship among the nations.

Benefits to Firms
1. Prospects for higher profits:
When the domestic prices are lower, business firms can earn more profits by selling their products in countries where prices are high.

2. Increased capacity utilisation:
It helps firms in using their surplus production capacities and improving the profitability of their operations. Large scale production helps to reduce the cost of production.

3. Prospects for growth:
It helps firms in improving their growth prospects by creating demands for their products in foreign countries.

4. Enhances competition:
External trade enhances competition, which compels the domestic firms to improve the technology of production, production process and quality of the products.

5. Improved business vision:
It improves business vision as it makes firms to grow, more competitive and diversified.

6 Mark Questions and Answers

Question 12.
Discuss briefly the factors that govern the choice of mode of entry into international business.
Answer:
Mode of Entry into International Business

1. Exporting and Importing:
When goods are sold to a foreign country, it is called export trade. When goods are purchasing from a foreign country, it is called import trade.

Advantages

• It is the easiest way of gaining entry into international markets.
• Business firms are not required to invest that much time and money in host countries.
• It is less risky as compared to other modes of. entry into international business

Limitations

• It involves additional packaging, transportation, and insurance costs.
• Exporting is not possible in case the foreign country restricts imports.
• The export firms do not have much contact with the foreign markets.

2. Contract Manufacturing (Outsourcing):
When a firm enters into a contract with one or a few local manufacturers in foreign countries to get certain goods produced as per its specifications it is called contract manufacturing. It is also known as outsourcing and it can take place in the following forms.

• Production of certain components
• Assembly of components into final products
• Complete manufacture of the products

Advantages

• It Permits international firms to get the goods produced on a large scale without requiring investment in setting up production facilities.
• There is no investment risk involved in foreign countries.
• It helps to get the products at a lower cost
• Local producers in foreign countries can ensure greater utilization of their idle production capacities.

Limitations

• It may affect the quality of the products.
• Local manufacturer in the foreign country loses his control over the manufacturing process because goods are produced strictly as per the terms and specifications of the contract.
• The local firm cannot sell the contracted output as per their will.

3. Licensing and Franchising:
Licensing is a contractual arrangement in which one firm grant access to its patents, trade secrets or technology to another firm in a foreign country for a fee called royalty. The firm that grants permission is known as licensor and the firm that receives the right to use technology or patents is called the licensee.
Franchising is similar to licensing. But it is used in connection with the provision of services. The parent company is called the franchiser and the other party to the agreement is called franchisee.

Advantages

• It is a less expensive mode of entering into international business.
• There is no investment risk
• Since the business in a foreign country is managed by the licensee/franchisee who is a local person, there are lower risks of business takeovers or government interventions.
• Since licensee/franchisee is a local person, he has greater market knowledge and customer contacts. It helps the licensor/franchiser in successfully conducting its marketing operations.

Limitations

• The licensee can start marketing an identical product under a slightly different brand name.
• Trade secrets may lose in foreign markets.
• Conflicts often develop between the licensor/ franchiser and licensee/franchisee over issues such as maintenance of accounts, payment of royalty, etc.

4. Joint Ventures:
Joint venture means establishing a firm that is jointly owned by two or more independent firms. It can be brought into existence in three major ways.

• Foreign investors buying an interest in a local firm.
• Local firms acquiring an interest in an existing foreign firm.
• Both the foreign and local entrepreneurs jointly forming a new enterprise.

Advantages

• Since the local partner also contributes to the equity capital, the international firm has less financial burden to expand the business globally.
• It helps to execute large projects requiring huge capital outlays and manpower.
• The foreign business firm benefits from local partner’s knowledge of the host countries.
• The foreign business firm shares costs and risks with a local partner. So they can enter into the foreign markets very easily and without high risk.

Limitations

• Foreign firms entering into joint ventures share the technology and trade secrets with local firms. It leads to leakage of technology and secrets to others.
• The dual ownership arrangement may lead to conflicts.

5. Wholly Owned Subsidiaries:
The parent company (holding company) acquires full control over the foreign company by making 100% investment in its equity capital. It is called wholly-owned subsidiaries. It can be established in either of the two ways. i.e.

• Setting up a new firm altogether to start operations in a foreign country.
•  Acquiring an existing firm in the foreign country.

Advantages

• The parent firm is able to exercise full control over its operations in foreign countries.
• It is not required to disclose its technology or trade secrets to others.

Limitations

• It is not suitable for small and medium-sized firms that do not have enough funds to invest abroad.
• The parent company alone has to bear the entire losses.
• It is subject to higher political risk.

8 Mark Questions and Answers

Question 13.
What is an international business? How is it different from domestic business.
Answer:
Differences between International Business and Domestic Business

You can Download International Business – II Questions and Answers, Notes, Plus One Business Studies Chapter Wise Questions and Answers Kerala Chapter 12 help you to revise complete Syllabus and score more marks in your examinations.

Kerala Plus One Business Studies Chapter Wise Questions and Answers Chapter 12 International Business – II

1 Mark Questions and Answers

Question 1.
The document containing the guarantee of a bank to honour drafts drawn on it by an exporter is.
Answer:
Letter of credit.

Question 2.
TRIP is one of the WTO agreements that deal with.
Answer:
Trade-related aspects of intellectual property.

Question 3.
RCMC means
Answer:
Registration Cum Membership Certificate.

Question 4.
Which of the following documents is not required for obtaining an export license?

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

Answer:
2. Letter of credit

Question 5.
Which of the following document is not required for an import of transaction?

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

Answer:
4. Shipment advice.

Question 6.
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:
3. Bill of entry.

Question 7.
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’s receipt
3. Cargo receipt
4. Charter receipt

Answer:
2. Mate’s receipt.

Question 8.
Which of the following documents is prepared by the exporter and includes details of the cargo in terms of the shipper’s 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:
1. Shipping bill.

Question 9.
The document containing the guarantee of a bank to honour drafts drawn on it by an exporter is

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

Answer:
2. Letter of credit

Question 10.
“It gives birth to a foreign territory within the home country for trading and for imposing duties”. What is referred to in this statement

1. EPZ
2. SEZ
3. Superstar trading houses
4. Deemed exports

Answer:
2. SEZ

Question 11.
This is a document stating the value and quantity of goods entering the country from abroad. It is submitted to the customs office either by the importer or his agent. What is this document?
Answer:
Bill of lading.

Question 12.
EPZ means…….

1. Advertisement
2. warehousing
3. insurance
4. transport

Answer:
Export Processing Zone

Question 13.
provides an internationally competitive and duty-free environment for the production of export goods.
Answer:
Special Economic Zone (SEZ)

2 Mark Questions and Answers

Question 1.
What is the IEC number?
Answer:
IEC means Importer’s Exporter’s Code Number. His number is to be filled within various papers connected with exports and imports.

3 Mark Questions and Answers

Question 1.
Answer the following in a word or phrase.

1. The document prepared by the master of the ship acknowledging the receipt of good.
2. The document issued as proof of the fact that goods have been produced in the country mentioned on it.
3. The document forwarded by the exporter to the importer after the shipment of goods.
4. The document issued by the dock authority after receiving the goods from the exporters.
5. The document needed in sending goods by air.
6. Document which acts as proof that goods of stated value and quantity are being brought into the country from abroad.

Answer:

1. Bill of Lading
2. Certificate of origin
3. Export Invoice/Foreign Invoice
4. Dock Receipt
5. Airway Bill
6. Bill of Entry.

Question 2.
What do you mean by Bill of lading? Explain its features.
Answer:
Bill of lading is a document issued by the shipping company after the cargo is loaded on the ship. It is an acknowledgement of the receipt of goods by the shipping company.

Features of Bill of lading

• It is an acknowledgement of the receipt of goods by the shipping company.
• It is a document which shows the title to the goods
• It is evidence of the contract of shipment.

4 Mark Questions & Answers:

Question 1.
Discuss the formalities involved in getting an export license.
Answer:

• Opening a bank account.
• Obtaining Import Export Code (IEC) number from the Directorate General Foreign Trade (DGFT)
• Registering with the appropriate export promotion council.
• Registering with Export Credit and Guarantee Corporation.

Question 2.
What is the bill of lading? How does it differ from the bill of entry?
Answer:
Bill of lading:
It is a document issued by the shipping company after the cargo is loaded on the ship. It is an acknowledgment of goods by the shipping company. It is a document which shows the title to the goods and is freely transferable by endorsement and delivery.

Bill of Entry:
It is a form supplied by the customs office to the importer who filled it at the time of receiving the goods. It has to be in triplicate and is to be submitted to the customs office. It contains information such as name and address of the importer, name of the ship, number of packages, description of goods, quantity and value of goods, name, and address of the exporter, port of destinations, customs duty payable, etc.

Question 3.
Name the documents used in external trade
Answer:
Indent
– Letter of Credit      – Bill of Lading
– Advice Letter         – Documentary Bill
– Insurance Policy    – Shipping order
– Shipping bill          – Mates Receipt
– Consular Invoice   – Certificate of origin
– Airway bill             – Export Invoice/Foreign Invoice
– Bill of Entry

5 Mark Questions and Answers

Question 1.
Name the document referred to in each of the following cases.

1. Agreement signed with the shipping company to enable us to put goods on the ship.
2. Document issued by the captain of the ship after loading the goods on the ship.
3. Assured payment on the strength of a document issued by the importer’s bank.
4. Document which authorises the bank to sell the goods in case of dis honour of bill.
5. Document received in exchange for Mate’s Receipt at the shipping office.

Answer:

1. Shipping order
2. Mate’s Receipt
3. Letter of credit
4. Letter of Hypothecation
5. Bill of Lading

Question 2.
Write a detailed note on the features, structure, objectives, and functioning of WTO.
Answer:
World Trade Organisation :
The General Agreement for Tariffs and Trade (GATT) was transformed into the World Trade Organisation (WTO) with effect from 1 st January 1995. The headquarters of the WTO are situated in Geneva, Switzerland. The World Trade Organization deals with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. It is concerned with solving trade problems between countries and providing a forum for multilateral trade negotiations. It has a global status similar to that of the IMF and the World Bank. India is a founding member of WTO.

Objectives of WTO:

• To ensure a reduction of tariffs and other trade barriers imposed by different countries.
• To engage in activities which improve the standards of living, create employment, increase Income, facilitate higher production and trade.
• To facilitate the optimal use of the world’s resources.
• To promote an integrated, more viable and durable trading system.

Functions of WTO:

• To remove barriers to international trade.
• Act as a dispute settlement body.
• To ensure that all the rules regulations prescribed in the Act are duly followed by the member countries for the settlement of their disputes.
• Laying down a commonly accepted code of conduct for international trade.
• To consult with IMF, IBRD and its affiliated agencies to bring better understanding and cooperation in global economic policymaking.

Benefits of WTO:

• It helps to promote international peace and facilitates international business.
• All disputes between member nations are settled with mutual consultations.
• It makes international trade and relations very smooth and predictable.
• Free trade improves the standard of living of the people by increasing the income level.
• Free trade provides an opportunity for getting varieties of qualitative products.
• Economic growth has been increased.

6 Mark Questions and Answers

Question 1.
Write short notes on

1. Bill of lading
2. Bill of entry
3. Letter of credit
4. Mate’s receipt
5. Certificate of origin
6. Shipping bill

Answer:
Documents for Export Transaction
A. Documents related to goods:

1. Export Invoice:
It is a seller’s bill which contains information about goods like quantity, number of packages, marks on packing, name of the ship, port of destination, terms of delivery &, payments, etc.

2. Packing List:
A packing list is a statement of the number of cases or packs and the details of the goods contained in these packs.

3. Certificate of Origin:
This is a certificate that specifies the country in which the goods are being produced. This certificate enables the importer to claim tariff concessions or other exemptions.

4. Certificate of Inspection:
For ensuring quality, the government has made an inspection of certain goods compulsory by some authorised agency like the export Inspection council of India (EICI), etc. After inspecting the goods, the agency issues a certificate of inspection that the consignment has been inspected as required under the export (Quality Control & Inspection) Act, 1963.

B. 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 on board the ship, etc.

2. Shipping Bill:
The shipping bill is the main document on the basis of which customs office grants permission for the export. It contains full details regarding the goods being exported name of the vessel, exporter s name & address, country of final destination, etc.

3. Bill of lading:
It is a document issued by the shipping company after the cargo is loaded on the ship. It is an acknowledgment of goods by the shipping company. It is a document that shows the title to the goods and is freely transferable by endorsement and delivery.

4. Airway Bill:
It is a document issued by the airline company acknowledging the receipt of goods for transshipment through air carriage.

5. Marine Insurance Policy:
It is a certificate of insurance contract whereby the insurance company agrees in consideration of premium to indemnify the insured against loss incurred by perils of the sea.

6. Cart Ticket:
It is also known as cart chit or gate pass. It is prepared by the exporter and contains details regarding export cargo like a number of packages, shipping bill number, port of destination, etc.

C. 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 up to a certain amount the payment of export bills to the bank of the exporter.

2. Bill of Exchange:
In export & import transaction, the exporter draws the bill on the importer asking him to pay a specified amount to a certain person or the bearer of the instrument. The documents required by the importer for claiming the title of exported goods are passed on to him only when the importer accepts this bill.

3. Bank Certificate of Payment:
It is a certificate that the necessary documents relating to the particular export consignment have been negotiated and payment has been received in accordance with the exchange control regulations.

Documents used in an Import Transaction

1. Trade enquiry
2. Proforma invoice
3. Import order or indent
4. Letter of credit
5. Shipment advice
6. Bill of lading
7. Airway Bill
8. Bill of entry

Bill of entry:
It is a form supplied by the customs office to the importer who filled it at the time of receiving the goods. It has to be in triplicate and is to be submitted to the customs office. It contains information such as name and address of the importer, name of the ship, number of packages, description of goods, quantity and value of goods, name, and address of the exporter, port of destinations, customs duty payable, etc.

Question 2.
What is IMF? Discuss its various objectives and functions.
Answer:
Trade Agreements:
At the international level, there are various international organisations such as the World Bank, IMF, and WTO for fostering economic cooperation, trade and investments . among the countries.

1. World Bank
The International Bank for reconstruction and development i.e. World Bank was established in 1945, whose main objectives were to aid the task of reconstruction of the war-affected economies of Europe and assist in the development of the underdeveloped nations of the world.
Functions:

• To bring about economic growth and widen the scope of international trade.
• To develop infrastructural facilities such as energy, transportation, etc.
• To help different countries for raising cash crops so that their income rises.
• In addition to providing financial assistance for infrastructure development, agriculture, industry, health, etc.

2. International Development Association (IDA)
International Development Association (IDA) was set up in 1960 as a part of the World Bank. IDA was established soft loans primarily to provide soft loans to the poorest countries. So it is called the Soft Loan Window of the IBRD.
Objectives of IDA

• To provide development finance on easy terms to the less developed countries
• To provide assistance for poverty eradication in the poorest countries
• To provide finance at concessional interest rates in order to promote economic development, raise productivity and living standards in less developed nations
• To extend macroeconomic management services relating to health, education, nutrition, human resource development and population control.

3. International Finance Corporation (IFC)
IFC was established in July 1956 in order to provide finance to the private sector of developing countries. All the members of the World Bank are eligible to become members of IFC.

4. The Multinational Investment Guarantee Agency (MIGA)
The Multinational Investment Guarantee Agency was established in April 1988 to supplement the functions of the World Bank and IFC.
Objectives of MIGA

• To encourage direct foreign investment into the developing countries
• To provide insurance cover to investors against political risks
• To provide guarantee against non-commercial risks
• To ensure new investments and expansion of existing investments
• To provide promotional and advisory services
• To establish credibility.

5. International Monetary Fund (IMF) International Monetary Fund: – it is the second international organization next to the World Bank. It came into existence in 1945 and its objective is the maintenance of exchange rates and providing short term loans to the countries facing short term foreign exchange problems.
Objectives of IMF

• To provide international monetary cooperation through a permanent institution.
• To facilitate the expansion of the balanced growth of international trade and to promote and maintain high levels of employment.
• To promote exchange rate stability among member countries.
• To help in the establishment of the International Payment System.

6. World Trade Organisation (WTO)

8. Mark Questions and Answers

Question 1.
What is the World Bank? Discuss its various objectives and role of its affiliated agencies.
Answer:
Trade Agreements:-
At the international level, there are various international organisations such as the World Bank, IMF, and WTO for fostering economic cooperation, trade and investments . among the countries.

1. World Bank
The International Bank for reconstruction and development i.e. World Bank was established in 1945, whose main objectives were to aid the task of reconstruction of the war-affected economies of Europe and assist in the development of the underdeveloped nations of the world.
Functions:

• To bring about economic growth and widen the scope of international trade.
• To develop infrastructural facilities such as ‘ energy, transportation, etc.
• To help different countries for raising cash crops so that their income rises.
• In addition to providing financial assistance for infrastructure development, agriculture, industry, health, etc.

2. International Development Association (IDA)
International Development Association (IDA) was set up in 1960 as a part of the World Bank. IDA was established soft loans primarily to provide soft loans to the poorest countries. So it is called the Soft Loan Window of the IBRD.
Objectives of IDA:

• To provide development finance on easy terms to the less developed countries
• To provide assistance for poverty eradication in the poorest countries
• To provide finance at concessional interest rates in order to promote economic development, raise productivity and living standards in less developed nations
• To extend macroeconomic management services relating to health, education, nutrition, human resource development and population control.

3. International Finance Corporation (IFC)
IFC was established in July 1956 in order to provide finance to the private sector of developing countries. All the members of the World Bank are eligible to become members of IFC.

4. The Multinational Investment Guarantee Agency (MIGA)
The Multinational Investment Guarantee Agency was established in April 1988 to supplement the functions of the World Bank and IFC.
Objectives of MIGA

• To encourage direct foreign investment into the developing countries
• To provide insurance cover to investors against political risks
• To provide guarantee against non-commercial risks
• To ensure new investments and expansion of existing investments
• To provide promotional and advisory services
• To establish credibility.

5. International Monetary Fund (IMF) International Monetary Fund: –
It is the second international organization next to the World Bank. It came into existence in 1945 and its
objective is the maintenance of exchange rates and providing short term loans to the countries facing short term foreign exchange problems.
Objectives of IMF

• To provide international monetary cooperation through a permanent institution.
• To facilitate the expansion of balanced growth of international trade and to promote and maintain high levels of employment.
• To promote exchange rate stability among member countries.
• To help in the establishment of the International Payment System.

6. World Trade Organisation (WTO)

Question 2.
Mr. Prakash has got an opportunity to take part in a business meeting. He meets an exporter of certain fast-moving consumer goods from America. He describes the profitability of these products if they are distributed in India. Mr. Prakash, after hearing this, shows his interest in importing the goods but is unaware of the procedure of import. Can you help him?
Answer:
Import Procedure

1. Trade enquiry:
It is a written request by the importer to the exporters for the supply of relevant information regarding the price, quality, quantity and various terms and conditions of export, etc. Then, the exporter prepares the quotation and sends it to the importer. The quotation is known as a proforma invoice.

2. Obtaining import license:
In India, it is compulsory to get the IEC number from the Directorate General Foreign Trade ( DGFT).

3. Obtaining foreign exchange:
As foreign exchange transactions are controlled by Reserve Bank of India, the importer has to submit an application along with necessary documents to the RBI to issue foreign exchange.

4. Placing order or indent:
After obtaining the import license, the importer places an import order or indent with the exporter for the supply of the specified products. It contains information about the price, quality, quantity of goods ordered, ports of shipment and destination, etc.

5. Obtaining a letter of credit:
The importer must obtain a letter of credit from his bank and send it to the exporter.

6. Arranging for finance:
The importer should make arrangements in advance to pay to the exporter on the arrival of goods at the port.

7. Receipt of shipment advice:
After loading the goods on the ship, the exporter dispatches the shipment advice to the importer. Shipment advice contains information about the shipment of goods.

8. Retirement of import documents:
After shipping the goods, the overseas supplier prepares necessary documents and hands over to his banker for their onward transmission to the importer when he accepts the bill of exchange. The acceptance of a bill of exchange for the purpose of getting delivery of the documents is known as the retirement of import documents.

9. Arrival of goods:
When the goods arrive in the importer’s country, the person in charge of the carrier informs the officer in charge at the dock or the airport about it. He provides a document called import general manifest for unloading of cargo. Import general manifest is a document that contains the details of the imported goods.

10. Customs clearance and release of goods:
All the goods imported into India have to pass through customs clearance after they cross the Indian borders. The importer must fulfill the following formalities for clearing the goods.

• Endorsement for delivery
• Payment of dock charges
• Bill of entry

Question 3.
Mr. Babu is running a ready-made garment manufacturing unit. He has got an order in the B2B meet held at Kochi, to export ready-made garments to Europe. How can execute it? Explain the procedure.
Answer:
Export Procedure

1. Receipt of enquiry and sending quotations:
The prospective buyer of a product sends an enquiry to different exporters requesting them to send information about price, quality, terms of payment, etc. The exporter sends a reply to the enquiry in the form of a quotation referred to as a proforma invoice.

2. Receipt of order or indent:
If the buyer is satisfied with the export price and other terms and conditions, he places the order or indent for the goods.

3. Assessing importer’s creditworthiness and securing a guarantee for payments: After receipt of the indent, the exporter makes a necessary enquiry about the creditworthiness of the importer. To minimise the risk, most exporters demand a letter of credit from the importer.

4. Obtaining an export license:
The exporter must apply for an export license to the appropriate authority. The following procedure is followed for obtaining the export license.

• Opening a bank account in any bank authorised by the Reserve Bank of India
• Obtaining Import Export Code (IEC) number
• Registration cum Membership Certificate (RCMC) from appropriate export promotion council
• Registering with Export Credit and Guarantee Corporation (ECGC) in order to safeguard against risks of non-payments.

5. Obtaining pre-shipment finance:
After obtaining the export license, the exporter approaches his banker in order to obtain pre-shipment finance for carrying out production.

6. Production or procurement of goods:
Exporter, after obtaining the pre-shipment finance from the bank, proceeds to get the goods ready as per the orders of the importer.

7. Pre-shipment inspection:
Quality control and pre-shipment inspection is compulsory in India as per Quality Control and Inspection Act. The inspection certificate is provided by the Export Inspection Council. The customs authority permits the shipment of goods only if there is an inspection certificate.

8. Excise clearance:
According to the Central Excise Tariff Act, excise duty on the material used in manufacturing goods is to be paid. For this purpose, the exporter applies to the concerned Excise Commissioner in the region with an invoice. 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 refund of excise duty is known as duty drawback.

9. Obtaining certificate of origin:
In order to obtain Tariff concessions or other exemptions, the importer may ask the exporter to send the certificate of origin.

10. Reservation of shipping space:
The exporting firm applies to the shipping company for the provision of shipping space. Then the shipping company issues a shipping order. A shipping order is an instruction to the captain of the ship that the specified goods after their customs clearance at a designated port be received on board.

11. Packing and forwarding:
The goods are then properly packed and marked with necessary details such as name and address of the importer, gross and net weight, port of shipment and destination, country of origin, etc. The exporter then makes necessary arrangements for the transportation of goods to the port.

12. Insurance of goods:
In order to protect the goods against the risk of loss or damage the exporter gets the goods insured with an insurance company.

13. Customs clearance:
The goods must be cleared from the customs before these can be loaded on the ship. For obtaining customs clearance, the exporter prepares the shipping bill. The shipping bill contains particulars of the goods being exported, the name of the ship, the port at which goods are to be discharged, exporter’s name and address, etc. Five copies of the shipping bill along with the following documents are then submitted to the Customs Appraiser at the Customs House:

• Export Contract or Export Order
• Letter of Credit
• Commercial Invoice
• Certificate of Origin
• Certificate of Inspection, where necessary
• Marine Insurance Policy

14. Obtaining mates 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 on board the ship, etc.

15. Payment of freight and issuance of bill of lading:
The clearing & forwarding agent (C&F agent) hands over the mate s receipt to the shipping company for the computation of freight. After receipt of the freight, the shipping company issues a bill of lading which serves as evidence that the shipping company has accepted the goods for carrying to the designated destination.

16. Preparation of invoice:
The exporter prepares an invoice for the dispatched goods. Invoice contains information regarding the quantity of goods & sent the amount to be paid by the importer. It is duly attested by the customs.

17. Securing payment:
After the shipment of goods, the exporter informs the importer about the shipment of goods. Various documents like a certified copy of invoice, bill of lading, packing list, insurance policy, certificate of origin and letter of credit are sent by the exporter through his bank. These documents are required by the importer for getting the goods cleared from customs. The exporter gets payment from his bank on the submission of necessary documents called negotiations of the documents.

Question 4.
India is an active participant in the global economy. Foreign trade has a prominent role in reaping the benefits of this phenomenon. In this context does the government take any measures to promote foreign trade? Do you think that the Government motivates the Indian entrepreneurs towards this end? Cite examples.
Answer:
Foreign Trade Promotion Measures and Schemes.

1. Duty drawback scheme:
It refers to the refund of customs and excise duties paid on imported inputs used in the manufacture of export goods.

2. Export manufacturing under bond scheme: Under this facility firms can produce goods without payment of excise and other duties. The firms can avail this facility after giving an undertaking (i.e. bond) that they are manufacturing goods for export purposes.

3. Exemption from payment of sales taxes:
Goods meant for export purposes are not subject to sales tax. Income derived from export operations had been exempt from payment of income tax. Now, this benefit of exemption from income tax is available only to 100 percent Export Oriented Units (100 percent EOUs) and units set up in Export Processing Zones (EPZs) or Special Economic Zones (SEZs) for selected 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.

5. Export Promotion Capital Goods Scheme (EPCG): The main objective of this scheme is to encourage the import of capital goods for export production. This scheme allows export firms to import capital goods at zero or concessional rates of import duty.

6. Scheme of recognising export firms as an export house, trading house and superstar
trading house: The registered exporters having a record of export performance over a number of years are granted the status of export houses/ trading houses/star trading houses/superstar trading houses subject to the fulfillment of annual average export performance.

7. Export of Services: In order to boost the export of services, various categories of service houses have been recognised, i.e. Service Export House, International Service Export House, International Star Service Export House.

8. Export finance: Two types of export finances are made available to the exporters by authorised banks. They are termed as pre-shipment finance and post-shipment finance. Pre-shipment finance is provided to an exporter for financing the purchase, processing, manufacturing or packaging of goods for export purposes. 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): They are industrial estates, which form special enclaves separated from the domestic tariff areas. 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. They can import capital goods and raw materials for the production of export goods without a license.

10. 100 percent Export Oriented Units (100 percent EOUs): These units are established with the main purpose of exporting their entire production except those which are specifically permitted to be sold in the domestic market.

11. Special Economic Zone (SEZ): It is specifically a delineated duty-free enclave, which is deemed to be foreign territory for the purpose of trading and imposing duties. It provided an internationally competitive and duty-free environment for the production of export of goods.