Chapter 11 International Trade – Class 11 Business Studies Notes

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Class 11 Business Studies Notes for Chapter 11 International Trade

Get Class 11 Business Studies Notes, Questions and Practice Papers for Chapter 11 International Trade. Candidates who want to pass Class 11 with a good grade can use this article for Notes, Questions, and Practice Papers.

We have provided access to the Class 11 Business Studies Notes, Important Questions and Practice Paper on Chapter 11 International Trade. You can practise the questions and check your answers using the solutions provided after each question.

Chapter Definitions and Short Notes

Chapter 11 International Trade – Short Notes and Definitions

 International Business

International business refers to the activities that involve trading and manufacturing across a country’s borders. It encompasses the exchange of goods and services, capital, personnel, technology, and intellectual property like patents and trademarks between nations.
This type of business has expanded due to advancements in communication, technology, and infrastructure, reducing barriers and making economies more dependent on each other.
International business not only brings countries closer but also integrates national economies into the global economy, promoting growth and profitability for firms venturing abroad.

Short Pointers:

  • International business involves cross-border trade and investments.
  • Includes movement of goods, services, capital, personnel, and intellectual property.
  • Driven by advancements in communication, technology, and transportation.
  • World Trade Organization (WTO) and government reforms support global business interactions.
  • Leads to economic integration and transforms the world into a ‘global village’.
  • Encourages firms to venture into foreign markets for growth and increased profits.

Meaning of International Business

Known as foreign or external trade, international trade involves the exchange of goods and services across a country’s borders. For trade obligations, it uses forex. International business involves the movement of goods, services, capital, personnel, technology, and intellectual property (patents and trademarks). Besides exporting and importing goods, it includes banking, tourism, advertising, foreign investments, and overseas production to better serve foreign customers at lower costs.

Short Pointers:

  • International trade is buying and selling goods and services beyond national borders.
  • Known as foreign or external trade, involves foreign exchange.
  • International business includes trade plus the global movement of capital, personnel, technology, and intellectual property.
  • Beyond just goods, it covers services like travel, banking, and advertising.
  • Has grown to include foreign investments and production in foreign countries.
  • Aims to serve foreign markets more efficiently and at reduced costs.

 Reasons for International Business

International business occurs because countries have varying abilities and resources to produce different goods and services efficiently and affordably. The unequal distribution of natural resources, differences in labour productivity, and variations in production costs across countries mean that some nations can produce certain goods and services more effectively than others. This leads to geographical specialisation, where countries and regions produce what they are best at and trade with others to obtain what they cannot produce as efficiently.
This principle not only applies to countries but also to firms, that engage in international business to buy goods at lower prices and sell their products where they can achieve higher prices.
Other benefits, beyond price advantages, also encourage nations and firms to participate in international business.

Short Pointers:

  • International business stems from varying production capabilities and resources among countries.
  • Unequal natural resource distribution and differences in labour productivity influence trade.
  • Countries specialise in producing goods and services efficiently and trade for other needs.
  • Geographical specialisation leads to efficient global production and trade patterns.
  • Firms engage in international business for cost advantages and higher profits.
  • Additional benefits also motivate participation in international business beyond mere price advantages.

Differences Between Internal and International Trade

Internal trade, or domestic trade, occurs within the geographical limits of a country, using domestic currency and adhering to national laws, with relatively low risk and operating costs.
In contrast, international trade, also known as external or foreign trade, involves transactions beyond a country’s borders, facing higher risks and costs due to long distances, differing currencies, and the necessity to comply with international laws and procedures.
This trade type requires adapting to varied political, social, cultural, and economic environments across countries, making it more complex than domestic trade. The international business landscape demands flexibility in product, pricing, promotion, and distribution strategies to meet the specific needs of diverse foreign markets.

Short Pointers:

  • Internal trade occurs within a country’s borders, using domestic currency and laws, and involves lower risk and cost.
  • International trade crosses national borders, involves higher risk and cost, and requires dealing with foreign exchange.
  • International trade demands compliance with international laws and procedures.
  • Differences in the nationality of buyers and sellers, legal and socio-economic environments, and currency usage complicate international trade.
  • Adapting business strategies to foreign markets’ specific requirements is crucial for international trade success.
  • Factors of production like labour and capital have less mobility across countries compared to within a country, affecting international trade.

Types and Scope of International Trade and Business

Export and import trade involve cross-border goods and services. Export trade involves selling domestically produced goods to another country to use surplus goods, better use resources, earn foreign exchange, increase national income, create jobs, and promote international cooperation.
In contrast, import trade involves buying goods from other countries to speed industrialisation, meet consumer demand, overcome famine, and defend the nation. In addition to trade, international business includes service exports and imports (invisible trade), licencing and franchising, and direct and portfolio foreign investments.

These activities allow businesses to operate in multiple countries through means other than buying and selling goods.

Short Pointers:

  • International trade is divided into exports (selling abroad) and imports (buying from abroad).
  • Export objectives: Utilise surplus, resource efficiency, earn foreign exchange, increase income, create jobs, foster cooperation.
  • Import objectives: Speed up industrialization, meet demand, address famine, ensure defence.
  • Beyond trade, international business includes service trade, licensing, franchising, and foreign investments.
  • Service trade covers tourism, travel, professional services, and financial services.
  • Licensing and franchising allow foreign firms to use trademarks, patents, or copyrights for a fee.
  • Foreign investments include direct investments (owning or partnering in foreign ventures) and portfolio investments (earning from foreign securities).

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NCERT Solutions

NCERT Solutions for Class 11 Business Studies – Chapter 11 International Trade

  1. Differentiate between international trade and international business.
    Answer: International trade and international business, though closely related, are distinct concepts within the global economic landscape. International trade specifically refers to the exchange of goods and services across national boundaries. This trade is primarily concerned with imports and exports of tangible products, and increasingly, services like tourism and banking. On the other hand, international business encompasses a broader spectrum. It not only includes international trade but also covers foreign investments, overseas production, and the global movement of capital, technology, and labour. International business thus deals with a more extensive range of economic activities that help firms and countries reach out beyond their national markets to optimise their business potential.

Mindmap to remember this answer:

  • Key Terms International Trade: Exports and imports of goods and services. International Business: Includes international trade, plus investments and production abroad.
  • Focus Areas Trade: Tangible goods and services only. Business: Also involves capital, technology, and labour movement.
  • Examples Trade Example: USA importing electronics from China. Business Example: A US company setting up a manufacturing plant in India.
  • Broader Scope Trade: Limited to exchange. Business: Encompasses establishing physical or direct business presences abroad like subsidiaries.
  • Associated Activities Trade: Mainly buying and selling. Business: Also includes owning, producing, and investing.

  1. Discuss any three advantages of international business.
    Answer: International business offers significant advantages that extend beyond simple financial gains. Firstly, it allows for the efficient use of resources. Different countries possess varying levels of resources and production capabilities. International trade enables countries to specialise in manufacturing goods where they have a comparative advantage, thereby improving overall resource utilisation and productivity. Secondly, international business enhances growth prospects and employment opportunities. By entering global markets, businesses can expand their operations beyond saturated domestic markets, tapping into new customer bases and potentially increasing their scale of operations, which often leads to job creation. Lastly, international business leads to the earning of foreign exchange. This is crucial for countries, as it provides the necessary funds to import essential goods and services that are not available domestically, thereby supporting economic stability and growth.

Mindmap to remember this answer:

  • Efficient Use of Resources
      • Specialisation in goods with comparative advantage
      • Improved productivity and resource utilisation
  • Enhances Growth and Employment
      • Expansion into global markets
      • Increases scale of operations and job opportunities
  • Earning of Foreign Exchange
    • Funds to import essential goods
    • Supports economic stability
  1. What is the major reason underlying trade between nations?
    Answer: The major reason underlying trade between nations is the varying ability of countries to produce goods efficiently and cost-effectively due to differences in natural resource distribution and productivity levels. Each country has different capabilities; some can produce certain goods at lower costs and better quality than others. This disparity leads to a specialisation where countries focus on producing goods that they can create more efficiently and trade for goods that are cheaper or better produced by other nations. This exchange enhances overall economic efficiency and helps countries utilise their resources optimally, leading to increased economic interaction and cooperation globally.

Mindmap to remember this answer:

  • Differences in Resource Distribution
      • Natural resources vary by country.
      • Differences in productivity and technology.
  • Specialisation
      • Countries focus on efficient production.
      • Trade for goods produced better by others.
  • Economic Efficiency
      • Optimal use of global resources.
      • Enhances economic cooperation.
  • Global Interaction
    • Increased trade and economic ties.
    • Growth in international business relations.
  1. Differentiate between contract manufacturing and setting up wholly owned production subsidiary abroad.
    Answer: Contract manufacturing and setting up a wholly owned production subsidiary abroad are two different approaches a company can take when expanding internationally. Contract manufacturing involves a company hiring local manufacturers in foreign countries to produce parts or entire products according to the company’s specifications. This method allows the company to utilise existing facilities and reduce investment risks by not owning the production facilities. In contrast, establishing a wholly owned subsidiary involves the company owning 100% of the subsidiary and controlling all aspects of its operations, which includes setting up new facilities or purchasing existing ones in the foreign country. This method offers complete control over production and business strategies but comes with higher investment risks and costs.

Mindmap to remember this answer:

  • Contract Manufacturing
      • Outsourcing production to local firms.
      • Uses existing foreign facilities.
      • Low investment risk.
      • Limited control over production.
  • Wholly Owned Subsidiary
    • Full ownership and control.
    • Establishes new facilities or buys existing ones.
    • Higher investment and operational costs.

Full control over production and business strategies. 

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MCQ Questions

Chapter 11 International Trade – MCQ Questions

MCQ Questions

  • Which of the following best describes the prime reason behind the fundamental shift in how countries market and produce various products and services?
A) Desire to increase domestic employmentB) Increased self-reliance of national economies
C) Development of communication and infrastructureD) Decrease in the cost of production

Answer: C) Development of communication and infrastructure

  • What role does the World Trade Organisation (WTO) play in international business?
A) Primarily focuses on domestic tradeB) Contributes to reducing barriers to international trade
C) Provides financial assistance to underdeveloped nationsD) Regulates the exchange rate of currencies

Answer: B) Contributes to reducing barriers to international trade 

 Which of the following is NOT true about international business?

A) Involves the international movement of goods and servicesB) Is limited to the trade of physical goods
C) Includes movements of capital and technologyD) Encompasses intellectual property like patents

Answer: B) Is limited to the trade of physical goods

  • What is the fundamental reason for countries engaging in international business?
A) To enhance cultural tiesB) Unequal distribution of natural resources
C) To solely increase their GDPD) Pressure from international organisations

Answer: B) Unequal distribution of natural resources

  • Which of the following statements best represents the concept of ‘global village’ as it relates to international business?
A) Businesses focus primarily on local marketsB) Digital technology allows for real-time communication worldwide
C) National economies are becoming increasingly borderlessD) Countries are reverting to protectionist trade policies

Answer: C) National economies are becoming increasingly borderless

  • What is a major difference between domestic and international business?
A) International business deals only in services, not goodsB) There is no need for adaptation in international business
C) International business involves adapting to diverse economic environmentsD) Domestic business involves higher financial risks

Answer: C) International business involves adapting to diverse economic environments

  • Exporting and importing are considered which type of international business operation?
A) Direct investmentB) Merchandise exports and imports
C) Licensing and franchisingD) Joint ventures

Answer: B) Merchandise exports and imports

  • Which of the following best describes a ‘franchising’ agreement?
A) An agreement where a company sells its products directly to a foreign distributorB) An arrangement to produce goods in a foreign country under a local company’s brand name
C) A licensing agreement where a company allows another to operate under its brand for a feeD) A direct investment into foreign stock markets

Answer: C) A licensing agreement where a company allows another to operate under its brand for a fee

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Very Short Answer Type Questions

Chapter 11 International Trade – Very Short Answer Type Questions

  1. What is the primary reason for the increased dependency of national economies on international trade?

Answer: Economies rely more on international trade due to advancements in technology and communication.

  1. Name two major contributors to the globalisation of business interactions among nations.

Answer: Key contributors are technological advancements and reforms by governments in different countries.

  1. Define international business.

Answer: International business involves trade and production of goods and services across national borders.

  1. What factors contribute to the different production capabilities among nations?

Answer: Differences in resource distribution, labour productivity, and production costs influence capabilities.

  1. Describe the principle behind the efficiency of international business.

Answer: Efficiency stems from countries specialising in producing goods where they have a comparative advantage.

  1. What are merchandise exports and imports?

Answer: Merchandise exports and imports refer to the trade of tangible goods between countries.

  1. How does international business differ from domestic business regarding the mobility of factors of production?

Answer: International business faces more restrictions on the mobility of labour and capital across countries.

  1. Mention one advantage of engaging in international business for countries.

Answer: Engaging in international business allows countries to earn valuable foreign exchange.

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Short Answer Type Questions

Chapter 11 International Trade – Short Answer Type Questions

  1. What is the primary driver behind the increasing dependency of national economies on international trade?
    Answer: The primary driver behind the growing dependency on international trade is the development in communication, technology, and infrastructure, which have reduced distances between nations, enhancing their economic interdependence.

Mindmap to remember this answer:

  • Key Drivers: Communication, technology, infrastructure

Result: Reduced distances, enhanced economic ties 

  1. Describe the role of technology in facilitating international business.
    Answer: Technology plays a crucial role in international business by speeding up communication, enhancing data transfer, and making global collaboration more efficient, thus bringing markets closer.

Mindmap to remember this answer:

  • Role of Technology: Speeds up communication, enhances data transfer
  • Impact: Brings markets closer, global collaboration
  1. How has the World Trade Organization (WTO) influenced global business interactions?
    Answer: The World Trade Organization (WTO) has significantly influenced global business interactions by promoting free trade through the reduction of trade barriers and the establishment of a regulatory framework for international trade disputes.

Mindmap to remember this answer:

  • WTO Influence: Promotes free trade, reduces trade barriers
  • Regulatory Framework: Manages international trade disputes
  1. Define international business and distinguish it from domestic business.
    Answer: International business involves transactions that cross national borders, including trade of goods, services, capital, and technology, unlike domestic business which occurs within a country’s borders.

Mindmap to remember this answer:

  • International vs. Domestic: Cross-border activities, trade of goods/services/capital/technology

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Case Based Questions

Chapter 11 International Trade – Case Based Questions

 Case 1: In 1991, faced with a crippling economic crisis, India approached the International Monetary Fund (IMF) for financial assistance. The IMF agreed to provide funds on the condition that India implement structural reforms to liberalise its economy. Since then, India has undergone significant economic changes to integrate more closely with the global economy.

  1. Considering the IMF’s conditions for financial assistance in 1991, discuss how these conditions influenced India’s economic policies towards globalisation. Reference the impacts these policies have had on India’s integration into the world economy.
    Answer: The IMF’s conditions in 1991 pushed India to open up its economy. This led to reduced tariffs and greater foreign investment, which helped India become more connected to the global economy. Because of these policies, Indian industries improved and we could trade more with other countries.
  2. Evaluate the advantages and disadvantages of multinational corporations (MNCs) entering the Indian market post-liberalization. Discuss how this movement has affected local businesses and the overall economy.
    Answer: The entry of MNCs brought many jobs and new technology to India, which is great. However, some local businesses struggled to compete with these big companies. Overall, MNCs have helped our economy grow faster, but we also need to support local businesses so they can keep up.

 Case 2: Mr. Sudhir Manchanda, an automobile component manufacturer in Gurgaon, is exploring international markets due to a recession in the domestic market. His competitors have already entered the export business, and he sees potential markets in South-East Asia and the Middle East.

  1. Analyse the challenges Mr. Manchanda might face in transitioning from domestic to international business. Consider differences in market conditions and consumer behaviour in the international markets he is considering.
    Answer: Mr. Manchanda might face challenges like understanding new customer needs and local competition in international markets. Each country has different preferences and buying behaviours which can be tough to meet at first.
  2. Mr. Manchanda’s friend has expressed concerns about the complexities of international business. Based on the friend’s advice, what strategies should Mr. Manchanda consider to effectively manage these complexities?
    Answer: To manage complexities, Mr. Manchanda should research thoroughly about the new markets, maybe find local partners, and adapt his products to meet local tastes. It’s also smart to understand the legal rules of those places to avoid any big problems.

 

Value Based Questions

Chapter 11 International Trade – Value Based Questions

  1. Given the global shift towards international business, discuss how embracing diverse cultural values can enhance a firm’s overseas market success. What values do firms need to respect when entering foreign markets?
    Answer: In our increasingly connected global market, respecting and understanding diverse cultural values enhances a firm’s success overseas. By embracing these values, firms can effectively communicate and create products that resonate with local consumers, which leads to increased trust and loyalty. Key values such as respect for local traditions, adaptability, and cultural sensitivity are essential. These values not only facilitate smoother operations but also demonstrate respect, which is fundamental in building long-lasting business relationships.

  1. Considering the role of WTO in global trade, critically analyse the value of fairness in international trade practices. How can developed and developing countries work together to ensure a more balanced approach to global economic policies?
    Answer: Fairness in international trade is crucial for creating equitable opportunities for all countries. Developed and developing nations can collaborate by establishing transparent trade policies that do not disproportionately benefit the wealthier nations. This cooperation could include reducing trade barriers for poorer nations and providing technological and financial support to help them compete fairly on the global stage. Emphasising fairness can lead to a more balanced global economy where all participants can benefit.
  2. Reflect on the environmental impact of relying heavily on petroleum products as mentioned in India’s import data. What values should guide countries when making decisions about energy imports to promote sustainability?
    Answer: The reliance on heavy imports of petroleum products raises concerns about sustainability and environmental impact. Countries should be guided by values such as sustainability, environmental responsibility, and foresight in making decisions about energy imports. Moving towards more sustainable and renewable energy sources not only mitigates environmental impact but also aligns with global efforts to combat climate change, ensuring a healthier planet for future generations.

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Long Answer Type Questions

Chapter 11 International Trade – Long Answer Type Questions

  1. Discuss the impact of technological advancements on international business practices.

Answer: Technological advancements have significantly transformed international business practices by enhancing communication and transportation. Technologies like the internet and mobile communication have enabled faster and more efficient communication across global markets, facilitating real-time collaboration and decision-making. Improvements in transportation technologies, including faster and more efficient shipping methods, have reduced the time and cost of moving goods across borders. This has allowed businesses to expand their markets and has increased the speed at which international business occurs, contributing to the growth of global trade networks.

Mindmap to remember this answer:

  • Communication Technology: Internet, mobile
  • Transportation Technology: Efficient shipping, faster logistics
  • Effects: Faster communication, reduced costs, expanded markets

 

  1. Analyse the role of international organisations like the World Trade Organization (WTO) in shaping global trade and investment.

Answer: The World Trade Organization (WTO) plays a crucial role in shaping global trade and investment by setting international trade rules and providing a forum for resolving disputes. The WTO helps reduce barriers to trade, ensuring that trade flows as smoothly, predictably, and freely as possible. This contributes to economic growth and development worldwide. Policies implemented by the WTO, such as trade agreements and dispute resolution mechanisms, help stabilise the global economy by ensuring that trade disputes between countries are handled constructively and fairly.

Mindmap to remember this answer:

  • Role: Setting trade rules, dispute resolution
  • Impact: Reduces trade barriers, stabilises global economy
  • Mechanisms: Trade agreements, economic policies
  1. Explain the concept of globalisation and how it has affected the sovereignty and economic strategies of nations.

Globalisation refers to the process by which nations and economies around the world become more interconnected and interdependent. This phenomenon has been driven by the reduction of trade barriers and the increased movement of goods, services, capital, and technology across borders. Globalisation has led to a decrease in the sovereignty of nations as they can no longer act independently without considering global impacts. Economically, countries have shifted strategies towards specialising in industries where they have a competitive advantage, which has led to increased efficiencies and growth. However, this has also resulted in vulnerabilities where nations become too dependent on global markets.

Mindmap to remember this answer:

  • Definition: Interconnection and interdependence of nations
  • Effects on Sovereignty: Reduced independence
  • Economic Strategies: Specialisation, increased efficiency

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Sample Questions Paper

Chapter 11 International Trade – Sample Questions Paper

Sample Question: 1

Time allowed: 2 hours Maximum Marks: 40

General Instructions:
(i) The question paper contains 14 questions.
(ii) All questions are compulsory.
(iii) Section A Question numbers 1 and 2 are 1 mark source-based questions. Answer to these questions must not exceed 10-15 words.
(iv) Section B Question numbers 3 to 9 are 2 marks questions. Answer to these questions should not exceed 30 words.
(v) Section C Question numbers 10 to 12 are 4 marks questions. Answer to these questions should not exceed 80 words.
(vi) Section D Question numbers 13 and 14 are 6 marks questions. Answer to these questions should not exceed 200 words.

Section A

  1. What enables the cross-border movement of goods and services in the present times? (1 mark)
  2. Define international business in a single line. (1 mark)

Section B

  1. Why do countries engage in international trade according to the passage? (2 marks)
  2. Mention two major advantages of international business to nations. (2 marks)
  3. What is the difference between direct and indirect exporting/importing? (2 marks)
  4. Define licensing as a mode of entry into international business. (2 marks)
  5. What is the role of an import licence for importing goods into India? (2 marks)
  6. What is the purpose of obtaining a letter of credit in an import transaction? (2 marks)
  7. What document serves as evidence that the shipping company has accepted goods for carrying to the destination? (2 marks)

Section C

  1. Explain the steps of obtaining an export licence and registering with relevant bodies for exporting from India. (4 marks)

OR

Discuss the pre-shipment steps that an exporter needs to complete after receiving an import order. (4 marks)

  1. What are the different types of joint ventures? How is a joint venture advantageous for an international firm? (4 marks)

OR

What is the difference between direct and portfolio investments as modes of international business operations? (4 marks)

  1. Discuss the role of the customs authority and related documentation in clearing imported goods in India. (4 marks)

OR

What is the procedure for obtaining foreign exchange for making payment to the overseas supplier in an import transaction? (4 marks)

Section D

  1. What are the major steps involved in completing an export transaction after receiving an export order? Explain in detail. (6 marks)

OR

Discuss the various benefits that accrue to nations and firms from engaging in international business operations. (6 marks)

  1. Compare and contrast exporting/importing with licensing/franchising and joint ventures as modes of entry into international business. (6 marks)

OR

What is the role of the authorised dealer bank and Reserve Bank of India in regulating import transactions? Explain the procedure. (6 marks)

Sample Question: 2

Time allowed: 2 hours Maximum Marks: 40

General Instructions:
(i) The question paper contains 14 questions.
(ii) All questions are compulsory.
(iii) Section A Question numbers 1 and 2 are 1 mark source-based questions. Answer to these questions must not exceed 10-15 words.
(iv) Section B Question numbers 3 to 9 are 2 marks questions. Answer to these questions should not exceed 30 words.
(v) Section C Question numbers 10 to 12 are 4 marks questions. Answer to these questions should not exceed 80 words.
(vi) Section D Question numbers 13 and 14 are 6 marks questions. Answer to these questions should not exceed 200 words.

Section A (1 Mark Each)

  1. What is the fundamental reason behind international business?
  2. State whether True or False: Exporting is the only component of international business.

Section B (2 Marks Each)

  1. What are the two major concepts critical to understanding political institutions?
  2. Differentiate between civil rights and political rights.
  3. What is meant by the term ‘interdependence’ in the context of modern societies?
  4. State two advantages of exporting as an entry mode for international business.
  5. What is franchising? Give one example.
  6. Briefly explain the steps of ‘obtaining pre-shipment finance’ and ‘customs clearance’ in the export procedure.
  7. What is the purpose behind an importer obtaining a letter of credit?

Section C (4 Marks Each)

  1. Discuss the salient features of the family as a social institution. OR Explain how change and continuity co-exist in the institution of family.
  2. Differentiate between direct and portfolio foreign investments with examples.
    OR
    Discuss two advantages of licensing/franchising as an entry mode into international business.
  3. What are the benefits of international business to firms? Explain any two.
    OR
    Discuss the steps of ‘obtaining foreign exchange’ and ‘retirement of import documents’ in the import procedure.

Section D (6 Marks Each)

  1. Explain the procedure for obtaining an export licence in India. What are the prerequisites for the same?
    OR
    Discuss the role of customs authorities and the shipping company in the export procedure.
  2. Discuss the various forms that constitute the scope of international business operations.
    OR
    Elaborate on the different types of families that exist on the basis of parameters like marriage, residence, ancestry/descent, size/structure and nature of relations.
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