Author Archives: Swati

NCERT Most important question:

Q1. When was the first census data collected during British India?

a) 1882

b) 1881

c) 1981

d) 1985

Ans: (c) 1881

Q2. What is Muslin?

Ans: Muslin is a high-quality cotton fabric that is widely available nowadays. Malmal is the finest form of muslin and is claimed to be the purest fabric in the world. The name ‘Muslin’ is claimed to have originated in the British Indian port town of ‘Maisolos’. People in Dhaka (now in Bangladesh) used to hand-weave it from fine hand-spun yarn.

Q3. What is commercialisation of agriculture and when did it begin?

Ans: Commercialisation of agriculture is an occurrence in which agriculture is governed by commercial reflection. In general, certain essential crops began to be grown for sale in national and international markets rather than for consumption in the village. Commercialization of agriculture in India began under British rule.

Q4. What was the life expectancy during British India and what is it today?

Ans: According to government statistics, the average life expectancy in British India was 32 years. It has now been 69.27 years.

Q5. What was the importance of the Suez Canal during British India?

Ans: The Suez Canal, which opened in 1869, drastically reduced the cost of goods transportation between Britain and India.

Q6. What is GDP in economics?

Ans: The Gross Domestic Product deals with the value of economic activity of a country. It is equal to the total expenditures for all final goods and services produced within the country in a stipulated period of time. In 2017, India’s Gross Domestic Product (GDP) was valued at 2597.49 billion US dollars. India’s GDP accounts for 4.19 percent of the global economy.

Q7. When were Railways introduced in India?

a) 1830

b) 1860

c) 1900

d) 1853

Ans: (d) The year 1853 marked the beginning of railways in British India.

Q8. Iron and steel industries began coming up in which year?

a) 19th Century

b) 17th Century

c) 14th Century

d) 20th Century

Ans: (d) The 20th Century has seen the beginning of the Iron and steel industries in India.

Q9. What was the infant mortality rate of British India?

Ans: In British India, the infant mortality rate was 218 per thousand, which was fairly high.

Q10. Which are the industries that were adversely affected due to partition of India?

Ans: After partition, the Jute and Textile Industries were the badly affected ones.

Q11. Name some individuals who tried to estimate colonial India’s per capita income.

Ans: Findlay Shirras, Dadabhai Naoroji, William Digby, V.K.R.V. Rao, and R.C. Desai were among those who attempted to estimate such figures. Despite the inconsistencies in the results, V.K.R.V. Rao’s estimates are considered accurate.

Q12. What were the motives behind deindustrialization by Britishers in India?

Ans: The two primary motives behind deindustrialization where to obtain superior quality raw materials at an extremely modest rate from India and to sell machine-made imported western goods at an exceptionally high rate in the Indian market.

Q13. What is export surplus?

Ans: The amount of goods and services that a country exports that are in excess quantity as compared to that of the amount of goods and services with it imports from outside its geographical boundaries is called an export surplus.

Q14. How did export surplus lead to economic drain of wealth during colonial rule?

Ans: In a sense, whatever surplus India procured through excess exports, was redirected to colonial Britain under different expenses, for example, military payment, “home charges”, interest payments or remittances of British residents and officials in India to Britain.

Q15. What percentage of labour were employed in the manufacturing and service sector in pre independent India?

Ans: In pre-independence India, manufacturing employed 10% of the workforce, while the service sector employed 18%.

Short Answer Questions                                                                       (3 or 4 Marks)

Q16. What was the motive behind the deindustrialization by the colonial Govt. in India?

or

What was the two-fold motive behind the systematic deindustrialization affected by the British in pre-independent India?

Ans: The two-fold motive behind the British systematic deindustrialization is as follows.

(i) Making India a Raw Materials Supplier: The fundamental rationale was to convert India to a simple exporter of significant raw materials in order to feed Britain’s quickly growing industrial base.

(ii) Developing India as a Finished Goods Market: One more significant goal of the British Government was to transform India into a rambling market for those industries’ final products ensuring that they could be guaranteed for the British industries.

Q17. How did the introduction of the railway system change the Indian Economy?

or

Discuss the changes railways brought to India?

Ans: The notion of bringing railways to India was first proposed in the 1830s. They proposed building a railway to connect the three ports of Bombay, Calcutta, and Madras. People were able to travel large distances, which helped India break down geographical and cultural barriers. It helped to commercialise Indian agriculture, which had a negative impact on our villages’ self-sufficiency. The volume of our trade grew, yet our people did not benefit from the earnings.

Q18. What do you mean by economic drain during British India?

or

Who has contested the theory of drain of wealth from India?

or

What do you understand about the drain of Indian wealth during the colonial period?

Ans: In the nineteenth century, Dadabhai Naoroji proposed the ‘Drain of Wealth’ idea. The exploitation of Indian resources was a hallmark of the colonial period. Britain’s principal motivation for conquering India was to gain control of a reliable source of low-cost raw materials to support its own industrial base in the country. Indian money, on the other hand, was spent on expensive finished products imported from Britain, making Britain richer at India’s expense. In addition, the British government employed India’s manpower to expand its colonial base outside of the country. Indians were paid less in the British army than their British equivalents. The money collected from Indiana and the export surplus generated through India’s overseas trade were also used to cover the costs of war and administrative expenses incurred by the British government to manage the colonial administration in India. As a result, British rule plundered Indian resources to serve their own interests.

Q19. How were traditional handicraft industries ruined under British rule in India?

or

The traditional handicrafts industries were ruined under British rule. Do you agree with this view? Give reasons in support of your answer.

or

How British rule ruined the life of artisans and craftsmen in India?

Ans: British economic policies devastated India’s handicrafts and cottage industries, which were formerly the principal sources of trade and income. The British damaged the cotton weaving and spinning industries, as well as the silk and woollen industries, as well as the pottery, paper, metal, and tanner businesses. The British followed the policy of de-industrialization to demolish Indian craftsmanship industries for their own advantage. They changed India to a simple exporter of crude materials for the forthcoming present-day businesses in Britain. The East India Company’s free-trade stance aided them in dictating trade conditions. They also forced Indian artisans to sell their wares at below-market prices, and they hired their services at pay well below the going rate. Indian commodities were subjected to hefty tariffs in the English market, whereas British goods were granted duty-free access to Indian markets. They exploited India in this way, resulting in the demise of world-renowned Indian handicrafts.

Q20. How was the foreign trade in the colonial period?

or

Discuss the state of foreign trade during the British period

or

Write a short note on the colonization effect on foreign trade of India.

Ans: India’s part of the global economy was roughly 20% at the beginning of the nineteenth century, and it was constantly increasing. The British had diminished India’s contribution to roughly 4% by the time they left. As a result, colonial rule crippled foreign trade to a considerable extent. India’s produced goods had a global market prior to colonisation. Some examples include Kashmir and Amritsar shawls and carpets, Banarasi silk sarees, and Nagpur silk textiles. The British intended to divert this vast volume of trade to their own advantage. With the support of restrictive commodities production, trade, and tariff policies during the British era, India’s external trade with the rest of the world was effectively cut off. Half of all international trade was confined to the United Kingdom. With the inauguration of the Suez Canal, British control over Indian international trade became much tighter. As a result of the oversupply, there was no flow of gold or silver. Such atrocities finally led to the emergence of India’s developing foreign trade sector.

Q21. Why is the impact of British rule highly debated among historians?

or

Was British colonialism good or bad for India?

or

What were the benefits of British rule in India?

Ans: The British Empire’s dominance in India is conceivably the most questionable and the most fervently discussed part of the historical backdrop of the British Empire.  Most critics of British rule point out that all of these gains went to a small British ruling class, while the rest of the Indians benefited little. Most Indians were poor and oppressed by their own leaders before the British arrived, and British control was less harsh on ordinary Indians than rule by Indian kings, according to supporters of British rule.

(Image will be uploaded soon)

Following are some of the benefits of the British rule in India: 

1. Education System: People in India are divided because of the various languages spoken in different parts of the country. The British, on the other hand, made English compulsory in the educational system throughout the country in order to recruit clerical personnel among Indians. They were able to lower their administrative costs as a result of this. They also felt that Indians who were taught through their system would eventually adopt their beliefs. This, on the other hand, benefited the Indians in a completely different way. Communication in India was facilitated by the use of a common language. Indians gained a greater understanding of the world, society, and systems. Overall, it has aided in the modernization of the Indian people.

2. Transportation: Prior to the arrival of the British, the only mode of transportation in India was bullock carts and other animals. The British built a vast network of highways and railways to facilitate the movement of raw resources from their source to the ports. The Red Hill Railroad Line in Madras was the first railway line. It was built in 1837 and was used to transport granite stone. In 1853, the first passenger railway line was established between Mumbai and Thane. In the same year, the postal service was also established.

3. Modernisation of the society: The British instilled in India the concepts of liberty, equality, human rights, science, and technology.  This, together with a well-structured educational system, opened the path for the country’s modernisation that was completely oblivious to the world’s modern developments. In 1829, Sati, a ritual in which a widow threw herself in her husband’s funeral pyre, was outlawed. In 1929, the Sharda Act was passed to prevent child marriage.

4. Architecture: The Britishers left behind an enormous number of public structures glad for their architectural wonders such as The Rashtrapati Bhavan, The Parliament House, Gateway of India and many others. They likewise presented current techniques and methods for development to the country. 

Q22. Who were Zamindars? What was the Zamindari system in British India?

or

Write a short note on Zamindari system.

or

How was the Zamindari system of land settlement?

or

What were the various forms of revenue settlement adopted by the British in India? What was the impact of such systems in today’s scenario?

Ans: Lord Cornwallis instituted the Zamindari System in India with the Permanent Settlement Act in 1793. It was first introduced in the Bengal, Bihar, Orissa, and Varanasi provinces of colonial India. The zamindars were recognised as landowners as long as they paid the East India Company’s revenue on time. The zamindars, who were seen as India’s answer to the British nobility, had existed since the post-Mauryan period and grew in prominence throughout the British period. They were found practically in every state, including Kashmir, Himachal Pradesh, Haryana, Punjab, Uttar Pradesh, Rajasthan and Gujarat, as well as Madhya Pradesh, Chhattisgarh, Karnataka, Hyderabad and Kerala. However, over the ages, the land ownership structure had changed. The land was separated into Jagirs and allotted to Jagirdars during the reign of the king. These Jagirdars divided the land they had received and distributed it to subordinate Zamindars. Zamindars forced peasants to cultivate the land in exchange for a portion of their earnings as a levy. The British established their first settlement in Bengal.

The three types of land tenure system adopted by the British are as follows:

a. Permanent Settlement/Zamindari System: Bengal, Bihar, Banaras, and the NWFP divisions accounted for roughly 19% of the total area during British rule.

b. Mahalwari System: During British rule, the Mahalwari System covered 30% of the country, including important areas of the NWFP, central provinces, and Punjab. 

c. Ryotwari System: Assam, Bombay, and Madras Presidencies covered around 51% of the region under British rule.

The following are some of the impacts of the Land Revenue System:

1. These land settlements established a commercial economy and abolished traditional rights. There was an upsurge in money-lending activities as a result of the cash payments of revenue.

2. The land tenure system accentuated socioeconomic divisions. The wealthy had recourse to the courts to defend their assets, whilst the impoverished did not.

3. The British land revenue system in India rattled the stability of Indian communities where agriculture and allied activities provided the majority of income. If a crop failed in any given year, they got miserable.

4. Peasants were forced to produce commercial crops, causing them to pay higher rates for food grains and lower prices for cash crops.

5. As a result, a substantial number of estates were put up for auction to settle revenue arrears. Many blamed it on the tenant farmers’ “stupidity and rascality” in not paying their rents.

Rents were at an all-time high, and it was no surprise. This may be seen in the fact that revenue in 1793 was set at 90% of the rental; by the end of the nineteenth century, rents had climbed to the point that income was just 28% of the rental. This is a measure of the Zamindars’ wealth as well as the unfairness meted out to other portions of India where assessments were significantly higher.

Q23. Enumerate the reasons for the poor growth and productivity of the agricultural sector in the colonial period.

or

How were the conditions of peasants during British rule?

or

What was the impact of British rule on the agriculture of India?

Ans: The plight of Indian peasants deteriorated steadily under British rule. The Englishmen implemented several land revenue schemes after obtaining the diwani of Bihar, Bengal, and Orissa. The agriculture sector dominated the Indian economy both pre-colonial and during the colonial period. The agriculture industry flourished as well after the British invasion. Previously, India used to export completed commodities and import raw materials. India became a net importer of completed goods and a net exporter of raw materials, primarily to Britain, following changes in agricultural laws that urged farmers to plant specific crops. There was a global agricultural catastrophe following World War I. The British Era is also recognised as a period of agricultural commercial transformation. Cash transactions largely superseded the barter system as the medium of exchange. The main motivation for agricultural commercialization was that India had been relegated to a provider of raw materials and food grains to the United Kingdom, as well as an importer of British manufactured goods. Many cash crops were introduced and spread during this time period, including indigo, cotton, jute, tea, and tobacco.

The impact of British rule on Indian agriculture:

• The British introduced a new class of landowners known as Zamindars, who viewed land as their personal property and sought to maximise monetary gains from it.
• Agriculture production was no longer just for the benefit of the hamlet, and much of it was sold at the market.
• The cultivators, who were the actual land tillers, were merely tenants with no rights who might be expelled by landlords.
• The fanner was frequently severely in debt, putting him in the hands of moneylenders who eventually gained control of the land and its harvest.
• In England, farmers were forced to grow cash crops in order to feed the industries. It undermined the village’s self-sufficiency.
• The new revenue arrangements resulted in peasant indebtedness and agricultural commercialization.
• As a result, there was widespread poverty and an issue of landlessness.

The money-lender cum merchant was aided in exploiting the grower by the expanding commercialization. The peasants were required to sell their produce soon after harvest, at whatever price they could get, in order to satisfy the demands of the government, money-lenders and the landlords. The growth in population pressure on agriculture, which disproportionately affected peasants, was added to the previous issues. The goal of agricultural activities switched from self-sufficiency to commercialization, with the goal of increasing colonial revenues. As a result, cash crop yields increased, but this did not benefit farmers in any manner.

Q24. How was the Indian economy before the advent of British colonial rule in India?

or

What was the condition of India before the Britishers?

or

What were the real conditions of India before the British arrived?

Ans: India was ruled by the British for more than a century. The British acquired the Empire section by section in the light of the conditions prevailing in India prior to the arrival of the British. Weak central political power, competition with European rivals, military forces, and Mughal negligence were the significant reasons that prompted the colonization.  In spite of the fact that the British had no political power in India prior to their entry, it took more than two hundred years for British political power to emerge in India. The conditions that existed before to the entrance of the British caused the colonisation of India.

Let us now consider the following points in relation to pre-colonial India:

1) Political: At the time, caste was the most important factor, and political power was concentrated in the hands of the upper castes. Village political leaders were Thakurs and Patels. 

2) Economic: The majority of the time, they were exchanging products or services with one another. Gold was also significant at the time. Agriculture and related businesses were the mainstays of the economy.

3) Social: The social situation was the worst it had ever been, with ‘untouchability’ and caste discrimination at an all-time high. Women were not allowed to participate in social, political, or economic decisions. Only Brahmin men were permitted to attend school, and even Brahmin women were not permitted to attend.

4) Administration: It was well-managed from an administrative standpoint. There were three administrative levels. The village was the smallest autonomous administrative unit. The judiciary was not good; it was frequently skewed by caste, relative, and gender. 

5) Military: The majority of it was modelled after the Mughal army. Cavalry played a crucial role in the military. It was methodical and effective.

NCERT Most important question:

Q1. Make a list of activities that constitute the ordinary business of life. Are these economic activities?

Answer

The activities that constitute the ordinary business of life are:
→ Buying of goods and services.
→ Rendering services to a company by employees and workers.
→ Selling of goods and services.
Yes, the above mentioned activities are regarded as economic activities as it involve the exchange of money to earn livelihood.

Q2. ‘The Government and policy makers use statistical data to formulate suitable policies of economic development’. Illustrate with two examples.
Answer
The statistical data is important for Government and policy makers to formulate suitable policies of economic development. It not only helps in analysing and evaluate the outcomes of the past policies but also assist them to take corrective measures and to formulate new policies accordingly. It is clear from examples –
(i) It can be ascertained easily by using statistical techniques whether the policy of family planning is effective in checking the problem of rapidly growing population.
(ii)  In preparing annual government budget, previous data of government expenditures and government revenues are taken into consideration for estimating the allocation of funds among various projects.

Q3. “You have unlimited wants and limited resources to satisfy them.” Explain by giving two examples.
Answer

Every individual have unlimited wants but the resources for satisfying the wants are limited. Scarcity is the root of all economic problems. Had there been no scarcity, there would have been no economic problem. This can be understood by examples -(i) A children pocket money is a limited so he/she have to choose only those things that you want the most. You can’t purchase almost all the things you wants.
(ii) A land available should be put in use either in agricultural or industrial. We can’t use same land for both activities.

Q4. How will you choose the wants to be satisfied?

Answer

Any individual fulfills his/her wants according to his/her needs, satisfactions and priority attached to different wants. Moreover, the choice of want also depends on the need of the hour and availability of the goods and also on the availability of means (money) to purchase that want.

Q5. What are your reasons for studying Economics?

Answer

The reasons for studying economics are:

→ To study the Theory of consumption: We want to know how the consumer decides, given his income and many alternative goods to choose from, what to buy when he knows the prices.

→ To study the Theory of Production: We also want to know how the producer, similarly, chooses what to produce for the market when he knows the costs and prices.

→ To study the Theory of Distribution: We want to know how the national income or the total income arising from what has been produced in the country is distributed through wages (and salaries), profits and interest.

→ The study of economics also helps us to understand and analyse the root cause of basic problems faced by an economy like, poverty, unemployment, income disparity, etc. and helps to take various corrective measures.

Q6. Statistical methods are no substitute for common sense. Comment.

Answer
This is true that Statistical methods are no substitute for common sense. Statistical data should not be believed blindly as it can be misinterpreted or misused. The statistical data may involve personal bias or may undergone manipulations. Also, statistical data and methods fail to reveal the errors committed by an investigator while surveying and collecting data. This can be understood by a story.
It is said that a family of four persons (husband, wife and two children) once set out to cross a river. The father knew the average depth of the river. So he calculated the average height of his family members. Since the average height of his family members was greater than the average depth of the river, he thought they could cross safely. Consequently some members of the family (children) drowned while crossing the river. Thus, the common sense must be used while applying statistical methods.

NCERT Most important question:

Q1. Differentiate between the contract manufacturing and setting up wholly owned production subsidiary abroad.

Ans: The difference between contract manufacturing and setting up wholly owned production subsidiary is as follows: 

Basis	Contract Manufacturing	Wholly Owned ProductionSubsidiary
Meaning	A type of international business in which a company contracts with one or a few local manufacturers in another country to have particular components or commodities manufactured according to its specifications.	Companies that seek complete control over their abroad operations use this way of international company entry.
Control	Because things are created completely according to the terms and standards, local businesses lose control over the manufacturing process.	Take complete control of the company’s operations.
Investment and Risk	If there is no investment, there is no risk.	It is not ideal for small and medium-sized businesses that do not have the finances to invest abroad.And it is responsible for all losses incurred as a result of its international businesses failing.

Q2. It is not just a sale of a trademark for a fee; also it abides the purchaser to follow strictly the rules of serving. Which mode of entry is this? Discuss any two limitations of it.

Ans: Licensing is defined as a contractual arrangement in which one firm (licensor) grants access to its patents, copyrights, trademarks, or technology to another firm in a foreign country for a fee called royalty.

Limitations

• The major risk is that the licensee can start marketing an identical product under a slightly different brand name. If not taken care of, the trade secrets can be passed on to the foreign markets.
• Conflicts over maintenance of accounts, payments of royalty, and non-adherence to norms relating to production of quality products.

Q3. What is the objective of WTO? What are its benefits?

Ans: Objectives of WTO are as follows:

Objectives

• To ensure that tariffs and other trade barriers imposed by different countries are reduced.
• To engage in activities that improve living standards, create jobs,
• Increase income and effective demand, and facilitate increased production and trade; 
• To facilitate the most efficient use of the world’s resources for sustainable development.
• To promote a more integrated, viable, and long lasting trade system.

Benefits

• Aids in the promotion of international peace and the facilitation of international trade.
• All member-nation conflicts are resolved by mutual talks. 
• International trade and ties are made much easier and more predictable by rules.
• Free trade raises people’s living standards by raising their income levels.
• Free trade allows for a wide range of high-quality products to be obtained. 
• Because of free trade, economic growth has accelerated.
• The system promotes effective government.
• The World Trade Organization (WTO) aids in the development of poorer countries.

Q4. Write notes on Bill of lading, Bills of entry, Shipping advice.

Ans:  The explanations are:

• Bill of Lading: The shipping company issues a bill of lading after receiving the freight, which acts as proof that the goods have been accepted for transport to the specified destination. This document is referred to as an airway bill when goods are being shipped by air.
• Bill of Entry: The bill of entry is presented to the port authority by the importer or his representative. The port authority issues the release order after obtaining the relevant charges. It is prepared by a qualified custom clerk or broker, and is examined by the customs authorities for its accuracy and conformity with the tariff and regulation.
• Shipping advice: It is a commercial document which is issued by the exporter, who is the beneficiary of the letter of credit, in order to give shipment details to the importer who has applied for the letter of credit.

Q5. Give the difference between Internal trade and International trade.

Ans: The difference between Internal trade and International trade is as follows:

Basis	International Trade	Internal Trade
Nationality of buyers and sellers	Buyers and sellers are from different countries.	The buyers and the sellers belong to the same country of business.
Nationality of stakeholders	Belong to different countries and have a wider set of values and aspirations.	Belong to one country and they have consistency in their value system and behaviour.
Mobility of factors production	Restricted mobility.	Free mobility.
Customer heterogeneity over the market	Difference in taste and preference does not induce complications in the task of designing products in the domestic market.	Difference in taste and preference does not induce any complication in the task of designing products in the domestic market.
Differences in business systems and practices.	Differences are considerably more among different countries.	Differences are less within the country.
Political systems and risks	In international business, the political environment differs from one country to another so the amount of risks is different.	The governing body within the country affects the domestic business.
Business regulations and policies	Business laws, regulations, and economic policies differ among different countries.	Business laws, regulations, and economic policies are less uniformly applicable within a country.
Currency used in business transactions	The price of one currency is expressed in relation to that of another country’s currency. Thus, it keeps fluctuating.	No such problem is faced as only home currency is used.

Q6. State the reasons to have international business?

Ans: Reason for international Business

• Unequal Distribution of Natural Resources: Countries cannot manufacture the same level of quality and at the same cost. This is due to the unequal distribution of natural resources and differences in productivity levels among different geographical places.
• Varied Differences: There is a disparity between labour productivity and manufacturing costs. Because of varied socioeconomic, geographical, and political factors, it varies in each country.
• Specialization Advantage: The principle of territorial division of labour can be applied internationally as well. Most developing countries with plenty of labour, for example, specialise in producing and exporting clothing.
• Price Differences: Firms also engage in the export and import of goods due to the difference in prices of products. They import cheaper things from other countries and export goods to other countries where they can fetch better prices for their products.

Q7. China is a major producer of electronic goods at very low cost as compared to India. Discuss the benefits that India will derive if it enters into a trade agreement with China for electronic goods.

Ans: Benefits to India if it enters into a trade agreement with China are as follows:

• Foreign exchange: International business facilitates foreign exchange within a country that aids in the payment of imported goods expenses, hence India’s foreign exchange would flourish with this trade agreement. 
• Efficient use of resources: Every country is specialised in the production of goods and services, leading to efficient utilisation of resources. 
• Growth: Exporting and flourishing in international trade helps in improving the economic growth of the country and creates opportunities for employment of people. Hence, India’s growth prospects would increase as a result of trade agreement.
• Stability: It also helps in bringing stability in the prices of domestic products of India.
• Better living standards: Due to International business, people in India would be able to consume and enjoy a higher standard of living.

Q8. List the formalities involved in getting an export license.

Ans: Prerequisites for getting an export license:

• Opening a bank account with any bank that has been approved by the Reserve Bank of India;
• Getting an Import Export Code (IEC) from the Directorate General of Foreign Trade (DGFT) or a Regional Import Export Licensing Authority;
• Creating an account with the right export promotion council. 
• To protect against non-payment risks, you should register with the Export Credit and Guarantee Corporation (ECGC).
• A company must submit an exporter/importer profile, a bank receipt for the required fee, a certificate from the banker, two copies of photographs attested by the banker, details of non-resident interest, and a declaration about the application to obtain an IEC number to the Director General for Foreign Trade (DGFT).
• It is a legal requirement for all exporters to register with the proper export promotion council.
• To secure international payments from political and commercial interference, you must register with the ECGC.

Q9. Explain the following documents used in International trade:

 (i) Mate’s Receipt.

Ans: A mate receipt is a 

• Receipt that is provided by the ship’s commanding officer when the cargo is loaded on board. 
• The receipt contains information such as the vessel’s name, berth, date of shipping, package description, marks and numbers, cargo condition at the moment of receipt on board the ship, and so on.
• The port superintendent gives the C&F agent the mate’s receipt after receiving the port dues.

(ii) Letter of credit.

Ans: A letter of credit is a guarantee issued by the importer’s bank that it will honour payment of export invoices to the exporter’s bank up to a specific amount. A  letter of credit is asked from the importer to reduce the extent of risk. The importer should get the letter of credit from its bank and send it to the overseas supplier.

(iii) Certificate of origin.

Ans: To avail the   trade  concessions  and  other  benefits,  the  importer  has to  ask  the  exporter  to send  a  certificate  of  origin. The certificate of origin issued by the importer acts as a proof that the goods are manufactured in the country from where the export is taking place.

Q10. List the codal formalities to obtain IEC No.

Ans: For obtaining the IEC number, a firm has to apply to the Director General for Foreign Trade (DGFT) with documents such as:

• Exporter/importer profile
• Bank receipt for requisite fee
• Certificate from the banker on the prescribed form
• Two banker-attested copies of photos
• Details of the non-resident interest
• Statement of the applicant’s non-association with the businesses on the caution list

Q11. What is WTO? Write its objectives and Functions?

Ans: One of the key achievements of GATT negotiations was the decision to set up a permanent institution for looking after the promotion of free and fair trade amongst nations. The GATT was transformed into the World Trade Organization (WTO) with effect from 1 January 1995. Its headquarters are in Geneva, Switzerland. 

It regulates not just products but also services and intellectual property rights. It is, moreover, a member-driven rule-based organization in the sense that all the decisions are taken by the member governments on the basis of a general consensus. India is the founding member of the World Trade Organisation.

Objectives

• To ensure that tariffs and other trade barriers imposed by different countries are reduced.
• To engage in activities that improve living standards, create jobs,
• Increase income and effective demand, and facilitate increased production and trade; 
• To facilitate the most efficient use of the world’s resources for sustainable development.
• To promote a more integrated, viable, and long lasting trade system.

Functions

• Establishing a commonly accepted code of behaviour with the goal of reducing trade obstacles, such as tariffs, and eradicating discrimination in international trade relations by encouraging its member countries to come forward to the WTO to resolve their problems.
• Acting as a dispute resolution body.
• Ensuring that all of the Act’s rules and regulations are obeyed.
• Holding consultations to improve understanding and cooperation in global economic policymaking.

Q12. In what ways exporting/importing is better than setting up wholly owned subsidiaries abroad.

Ans: Exporting/Importing: Exporting refers to sending of goods and services from the home country to a foreign country. Whereas, Importing is defined as the purchase of foreign products and bringing them into one’s home country.

Wholly Owned Subsidiary: Those companies which want to exercise full control over their overseas operations, set up a wholly owned subsidiary in an overseas country.

Benefits of Exporting/Importing over Wholly Owned Subsidiary:

• Ease of entry: Exporting is the easiest way of gaining entry into international markets as compared with wholly-owned subsidiaries.
• Investment: Business firms are not required to invest that much time and money in exporting whereas in the case of wholly-owned subsidiaries, it is not suitable for small and medium size firms as they do not have enough funds with them to invest abroad.
• Risk: Because exporting and importing do not necessitate a large amount of foreign investment, the risk of foreign investment is negligible or very low.  In the case of wholly owned subsidiaries, they face greater political risks and are responsible for all damages resulting from the failure of their international activities.
• Government Interference: There are high political risks in the case of wholly owned subsidiaries as against exporting.
• Profit/Loss Risk: 100% equity is invested in case of wholly owned subsidiaries, making it riskier in comparison to exporting/importing.
• Complexity: The degree of complexity is higher in case of wholly owned subsidiaries as compared to exporting/importing.

Q13. ABS Garment Company has received an order to export 2000 men’s trouser to XYZ Imports Ltd. located in Australia. Discuss the procedure that abs would need to go through for executing the export order.

Ans: ABS should follow the export procedure given below:

1. Receipt  of  enquiry  and  sending  quotation

• Exporters can be notified of a request for information even if the importer places an advertisement in the press.
• The exporter responds to the inquiry with a quotation, often known as a proforma invoice.
• The proforma invoice comprises information about the price at which the exporter is willing to sell the goods, as well as information about the quality, grade, size, weight, mode of delivery, packing type, and payment terms.

2. Receipt  of  order  or  indent 

• It sets an order for the items to be sent if the export price and other terms and conditions are acceptable.
• Also referred to as indent, contains  the details of the goods ordered, and other information in respect to price, delivery, packing, marking etc.

3. Determining the creditworthiness of the importer and obtaining a payment guarantee

• The importer’s creditworthiness is investigated by the exporter.
• A  letter of credit is asked from the importer to reduce the extent of risk. 
• A letter of credit is a guarantee issued by the importer’s bank that it will honour payment of export invoices to the exporter’s bank up to a specific amount.

4. Obtaining  export  licence 

• In India, exporting commodities is governed by customs laws, which require that an export firm obtain an export licence before proceeding with exports.
• Prerequisites  for  getting  an  export  licence: 

• Opening a bank account with any bank that has been approved by the Reserve Bank of India;
• Getting an Import Export Code (IEC) from the Directorate General of Foreign Trade (DGFT) or a Regional Import Export Licensing Authority;
• Creating an account with the right export promotion council. 
• To protect against non-payment risks, you should register with the Export Credit and Guarantee Corporation (ECGC).
• A company must submit an exporter/importer profile, a bank receipt for the required fee, a certificate from the banker on the prescribed form, two copies of photographs attested by the banker, details of non-resident interest, and a declaration about the application to obtain an IEC number to the Director General for Foreign Trade (DGFT).
• It is a legal requirement for all exporters to register with the proper export promotion council.
• To secure international payments from political and commercial interference, you must register with the ECGC.

5. Obtaining  pre-shipment  finance 

• To begin pre-production, the exporter asks his banker for pre-shipment financing.
• Pre-shipment finance is the funding required by an exporter to purchase raw materials and other components, process items, and transport goods to the port of shipment.

6. Production or procurement of goods

• The exporter then gets the goods ready according to the importer’s specifications.
• Either the company produces the commodities itself or it purchases them from the market.

7. Pre-shipment Inspection

• Inspection of some products by a competent agency recognised by the government is required.
• For this aim, the government created the Export Quality Control and Inspection Function in 1963 and authorised specific entities to act as inspection agencies.
• At the time of export, the pre-shipment inspection report is required to be submitted along with other export paperwork.

8. Excise Clearance

• The materials used to make the items are subject to excise duty.
• The exporter must submit an invoice to the relevant Excise Commissioner in the region.
• The Excise Commissioner issues the Excise clearance if he is satisfied with the invoice.
• The refund of an excise duty is known as a duty drawback.
• This scheme of duty drawback is administered by the Directorate of drawback under the ministry of finance which fixes the rates of drawback for different products.

9. Obtaining certificate of origin

• To avail the   trade  concessions  and  other  benefits,  the  importer  has to  ask  the  exporter  to send  a  certificate  of  origin.
• The certificate of origin issued by the importer acts as a proof that the goods are manufactured in the country from where the export is taking place.

10. Reservation of shipping space

• The exporting company submits a request for shipping space to the shipping company. 
• It must specify the types of commodities to be exported, the expected shipment date, and the final destination port. 
• The shipping business issues a shipping order after accepting the application for shipping.

11. Packing and forwarding

• The items are then properly packed and labelled with relevant information such as the importer’s name and address, gross and net weight, shipping port and destination, country of origin, and so on.
• The exporter then arranges for the transportation of the goods to the port.
• The railway authorities issue a “railway receipt” when commodities are loaded into a railway waggon, which serves as a title to the items.
• To enable his agent to take delivery of goods at the port of shipping, the exporter endorses the railway receipt in his favour.

12. Insurance of goods

• During transit, items are covered for loss with an insurance company to safeguard against the danger of loss or damage due to the perils of the sea.

13. Custom clearance

• Before the products can be loaded into the ship, they must first be cleared from customs.
• The exporter prepares the shipping bill in order to gain custom clearance.
• The main document on which the customs office grants export permission is the shipping bill.
• Five copies of the shipping bill are subsequently presented to the Customs Appraiser at the Customs House, together with the following documents:
• Export Contract or Export Order
• Letter of Credit
• Commercial Invoice
• Certificate of Origin
• Certificate of Inspection
• Marine Insurance Policy 

• Following the submission of these documents, the Superintendent of the relevant port trust is contacted to acquire a carting order. 
• The command to the workers at the port’s gate to allow the goods to enter the dock is known as a carting order.

14. Obtaining mates receipt

• A mate receipt is a receipt that is provided by the ship’s commanding officer when the cargo is loaded on board. 
• The receipt contains information such as the vessel’s name, berth, date of shipping, package description, marks and numbers, cargo condition at the moment of receipt on board the ship, and so on.
• The port superintendent gives the C&F agent the mate’s receipt after receiving the port dues.

15. Payment of freight and bill of lading

• The C&F agent hands along the mate’s receipt to the shipping business for freight calculation.
• The shipping company issues a bill of lading after receiving the freight, which acts as proof that the goods have been accepted for transport to the specified destination.
• This document is referred to as an airway bill when goods are being shipped by air.

16. Preparation of invoice 

• The invoice specifies the quantity of products shipped as well as the money due from the importer. 
• The C&F representative arranges for it to be duly authenticated by customs.

17. Securing payment

• The importer will require a variety of documentation in order to claim ownership of goods upon their arrival in his or her nation and get them customs cleared.
• In this case, a certified copy of the invoice, a bill of lading, a packing list, an insurance policy, a certificate of origin, and a letter of credit is needed.
• The submission of necessary documents to the bank for the purpose of receiving payment from the bank is referred to as “document negotiation.”
• When the bill of exchange is received, the importer either releases the money in the event of a sight draught or accepts the usance draught for payment on the bill of exchange’s maturity date. 
• The payment is collected by the exporter’s bank through the importer’s bank and credited to the exporter’s account. 
• The exporter can receive immediate payment from his/her bank upon submission of documentation by signing a letter of indemnity.

Q14. What is the World Bank? Discuss the various objectives and role of its affiliated agencies.

Ans: The Bretton Woods Conference led to the formation of the International Bank for Reconstruction and Development (IBRD), which is also referred to as the World Bank.

• The main goals were to aid in the reconstruction of Europe’s war-torn economies and to aid in the development of the world’s disadvantaged nations.
• After achieving success, it shifted its focus to the development of undeveloped countries.
• It realised that by investing more in these countries, particularly in social sectors such as health and education, it might help them achieve the requisite social and economic transformation.

Objectives and role of its affiliated agencies:

• The International Development Association (IDA): The International Development Association (IDA), an affiliate of the World Bank was established with the goal of providing loans on favourable terms and circumstances to countries with per capita incomes below a crucial level. IDA thus offers poor countries with interest-free long-term loans. 
• The International Finance Corporation: The International Finance Corporation, or IFC, was established in 1956 as a separate legal body with the mission of providing financing to the private sector in developing countries. Despite being a World Bank affiliate, the IFC has its own funds and functions that are controlled independently. 
• MIGA (Multinational Investment Guarantee Agency): MIGA, or the Multinational Investment Guarantee Agency, was founded in April 1988 with the goal of stimulating foreign direct investment in developing countries. It also provides advising services and insures investors against political and noncommercial hazards.

Q15. What is IMF? Write its objective and functions.

Ans: The IMF was established with the primary goal of developing an orderly international monetary system, which includes facilitating international payments and adjusting exchange rates between national currencies.

Objectives

• Facilitate the expansion of balanced international commerce and contribute to the promotion, maintenance of a high level of employment through the establishment of a permanent institution.
• Assist in the construction of a multilateral system of payments for current transactions between members to enhance exchange stability and preserve orderly exchange arrangements among member nations.

Functions

• Acting as a short-term credit institution.
• Providing machinery for the orderly adjustment of exchange rates Acting as a short-term credit institution.
• Provision of necessary facilities to ensure that the exchange rates are adjusted timely and orderly
• Acting as a repository for all member countries’ currencies.
• Acting as a foreign currency and current transaction lending institution Determining the value of a country’s currency and altering it.
• Providing machinery for international consultations.

Q16. What incentives and schemes are provided by government for country export?

Ans:  The following are schemes and measures of promotion foreign trade:

1. Duty drawback scheme 

• Duties paid on export products are repaid to exporters upon presentation of proof of these commodities’ exports to the appropriate authorities. Duty drawbacks are the term for such returns.
• Refund of excise duties paid on items intended for export, as well as refund of customs duties paid on raw materials and machines imported for export manufacturing, are some of the key duty drawbacks. The latter is also referred to as a “customs drawback.”

2. Export manufacturing under bond schemes

• This facility allows businesses to make goods without having to pay excise and other taxes.
• Firms wishing to use this service must provide an assurance (i.e., a bond) that they are making items for export.

3. Exemption from payment of sales taxes

• Sales tax does not apply to goods intended for export.
• For certain years, this benefit of income tax exemption is only available to 100% Export Oriented Units (100% EOUs) and units established in Export Processing Zones (EPZs)/Special Economic Zones (SEZs).

4. Advance license scheme

• The exporter is permitted duty-free access to domestic and imported inputs for the production of export goods.
• As a result, the exporter is exempt from paying customs tax on goods imported for the purpose of making export goods.
• Advance licences are accessible to both regular and irregular exporters.

5. Export Promotion Capital Goods Scheme (EPCG)

• Allows export enterprises to import capital goods with no or low customs taxes, subject to real user conditions and the fulfilment of specific export obligations.
• This scheme is especially useful to industrial units looking to modernise and upgrade their existing plant and machinery.

6. Scheme of recognising the export firms and trading houses. 

• The government provides the designation of Export House to a firm that has achieved a stipulated average export performance in previous select years, with the goal of promoting established exporters and assisting them in marketing their products in foreign markets. 
• Apart from achieving a minimum of previous average export performance, such export enterprises must also meet other requirements outlined in the import-export policy.

7. Export of services

• The goal is to increase service exports.
• The service houses are set up and awarded based on the service providers’ export performance.
• Service Export House, International Service Export House, and International Star Service Export House are some of the terms used to describe them.

8. Export finance

• Exporters require funds to manufacture their goods.
• Authorized banks make two types of export financing available to exporters.
• Pre-shipment finance: Also known as packing credit is money given to an exporter to help them finance the acquisition, processing, manufacturing, or packaging of products for export.
• Post-shipment finance: Under this plan, funds are made available to the exporter from the time the loan is extended until the items are delivered to the destination country.

9. Export processing zones

• Export Processing Zones are industrial estates that emerge from the Domestic Tariff Areas (DTA) to form enclaves .
• They’re generally found around airports or ports.
• They’re designed to provide a low-cost, internationally competitive duty-free environment for export production.
• EPZs have recently been upgraded to Special Economic Zones (SEZs), which are a more advanced version of export processing zones. All laws and regulations controlling imports and exports are waived in these SEZs.

10. 100 percent Export Oriented Units (100 percent EOUs)

• EOUs were created with the goal of increasing export production capacity by providing an adequate policy framework, operational flexibility, and incentives.
• It follows the same production process as before, but it gives you more options for where you want to make your product.

Q17. Identify the documents highlighted in the following statements:

(i) This document is issued by the commanding officer of the ship to the exporter after cargo is loaded on the ship.

Ans: Mate receipt: It is a receipt provided by the ship’s commanding officer when the cargo is loaded on board, and it contains information such as the vessel’s name, berth, date of shipping, package description, marks and numbers, cargo condition at the moment of receipt on board the ship, and so on.

(ii) This document is prepared by shipping company to acknowledge the receipt of goods on ship and gives an undertaking to carry them to the port of destination.

Ans: Bill of lading: After receipt of the freight, the shipping company issues a bill of lading which serves as an evidence that the shipping company has accepted the goods for carrying to the designated destination.

(iii) This document is the most appropriate and secure method of payment to settle international transactions.

Ans: Bill of exchange: When the bill of exchange is received, the importer either releases the money in the event of a sight draught or accepts the usance draught for payment on the bill of exchange’s maturity date. The money is received by the exporter’s bank via the importer’s bank and credited to the exporter’s account. By signing a letter of indemnity, the exporter might receive quick money from his or her bank upon submission of paperwork.

(iv) On the basis of this document, the customs office grants permission for the export.

Ans: Shipping bill: It is the main document on the basis of which the customs office permits to export.The exporter prepares the shipping bill in order to gain custom clearance.

(v) This document is prepared by the importer and it shows the details of goods imported.

Ans: Import order: This document is generated by the importer and contains the following information on the products imported: The import order includes information on the price, amount, size, grade, and quality of the items ordered, as well as packing, shipping, ports of shipment and destination, delivery date, insurance, and payment methods.

(vi) On the basis of this document imported goods are unloaded from the carrier. 

Ans: Import manifest:  Imported items are unloaded from the container using this document:He supplies an import general manifest paper. An import general manifest is a document that contains information on the products being imported.

Q18. Mr. Manchanda is a business man in Gurgaon he manufactures scooters. His son after doing an MBA in the USA returns to India and suggests that they should set up a fully owned factory in Bangkok for supplying to customers in the South East Area and Middle East. Mr. Manchanda however does not agree to his proposal and wants to set this unit in South India. They are having a debate on this. In your opinion with whom you agree. Give reasons to support your answer.

Ans: I would agree to set up a wholly-owned factory i.e. wholly-owned subsidiary in Bangkok for supplying customers in the South East area and the Middle East area.

Companies that desire complete control over their overseas activities prefer a wholly owned subsidiary as an entrance route into international company.

It can be determined in two ways:

• Setting up a new firm.
• Acquiring an already settled and established firm in the foreign country and further using it to manufacture as well as promote the products within the host country. This allows it to maintain complete control over the company’s activities. 

Benefits of doing business Internationally are:

• Cost of transportation from India will be reduced by setting up a production plant overseas.
• It will make the Manchadas more closer and nearer to their overseas customers.
• Business firms can earn more profits by selling their products in countries with high pricing when local prices are lower.
• The company can exercise full control over its operations.
• Making use of excess production capacity in order to increase operational profitability.
• When demand in the home country dries up, the corporation might look to developing countries for expansion opportunities.
• When domestic market competition is fierce, internationalisation appears to be the only way to grow significantly.
• The desire to become more international stems from a want to expand, a desire to become more competitive, a desire t

• Cost of transportation from India will be reduced by setting up a production plant overseas.
• It will make the Manchadas more closer and nearer to their overseas customers.
• Business firms can earn more profits by selling their products in countries with high pricing when local prices are lower.
• The company can exercise full control over its operations.
• Making use of excess production capacity in order to increase operational profitability.
• When demand in the home country dries up, the corporation might look to developing countries for expansion opportunities.
• When domestic market competition is fierce, internationalisation appears to be the only way to grow significantly.
• The desire to become more international stems from a want to expand, a desire to become more competitive, a desire to diversify, and a desire to reap the strategic benefits of internationalisation.

NCERT Most important question:

Question 1.
Explain the importance and advantages of foreign trade.
Answer:
Importance of External Trade: Due to unequal distribution of natural resources and skills of different countries, foreign trade is the only solution to specialise in the production of those goods for which a large number of resources and facilities available in a country and export the surplus production to other countries and simultaneously make imports other goods from some other country.

Foreign trade makes available the goods to the consumers of countries where they are not produced. Thus, it improves the standard of living of the people. Foreign trade is also important for the economic development of a nation. Capital equipment and scarce raw materials can be imported. Similarly, surplus commodities can be exported to other countries and foreign exchange may be earned.

Advantages of Foreign Trade:
The advantages of foreign trade are discussed below –
1. Optimum use of Resources: Foreign trade leads to the international division of labour and specialisation. It reduces wastage of resources resulting from the production of uneconomic goods. The resources are also used efficiently.

2. Standard of Living: International trade helps the people living in different countries to raise their standard of living by providing goods and services which cannot be produced economically in a particular country.

3. International Relations: Foreign trade makes different countries dependent upon each other. A country having surplus products can sell its surplus stock to the deficient countries and a country having a deficiency of a product can import it from another country. This promotes goodwill and cordial relations among the nations of the world.

4. Stabilisation of Prices: Foreign trade leads to stabilisation of prices of commodities throughout the world by adjusting demand and supply. This would not have been possible in the absence of foreign trade.

5. Employment: Foreign trade helps in increasing employment opportunities in the export-oriented industries.

6. Economies of Large-scale: Foreign trade facilitates the specialisation of a country in the production of certain goods. This will help to carry on the production of some commodities not only for home consumption but also for external consumption. This will lead to several economies of large scale production. The resources will also be utilised in a better way.

7. Growth of Economy: Under-developed and developing countries can exploit their unutilised natural resources with the import of technical know-how, machinery and equipment from the advanced countries.

Question 2.
Differentiate between Internal (Home) Trade and Foreign (external) Trade.
Answer:
Difference between Home Trade and Foreign Trade:

Basis	Internal Trade	External Trade
1. Meaning	It means trade conducted within the boundaries of a country.	It means trade between traders of two different countries setting at for from places.
2. Restrictions	There are no restrictions on the volume of the home trade.	There are several restrictions on the volume of foreign trade, e.g., licensing, quota, tariffs, exchange control, etc.
3. Transport	It uses locally available means of transport.	It uses the sea and other modes of transport. Due to long distances, transport cost is higher.
4. Risk	It involves comparatively less risk in transit.	It involves several risks in transit. Sea transport carries more risks compared to surface transport.
5. Foreign Language	There is no problem with foreign language and culture.	The difference between language and social set up of different countries hinder the free flow of trade.
6. Payments	Payments can be made in cash or through cheque. It is easier to collect payments.	Payments are made through banks. The procedure of payment is time-consuming and cumbersome.
7. Currency	Trade is carried in terms of the currency of the country.	Currencies of the two countries are involved. The exchange rate between the two has to be fixed.
8. Laws	National laws, rules and regula¬tions govern the internal trade.	Laws of the respective countries, international law and customs govern the external trade.

Question 3.
Explain the various terms used in foreign trade.
Answer:
Terms used in external trade:
Some of the important terms used in export trade are given below –

1. Free on Board (FOB): The importer has to bear all costs and risks of loss or damage from the port of shipment.
2. Cost and Freight (C&F): Under this contract, the exporter is expected to deliver the goods at the port of shipment. The freight charges are payable by the exporter. The importer bears the risk of loss or damage to the goods after this destination. C&F price consists of the FOB price plus freight charges.
3. Cost, Insurance and Freight (CIF): Under CIF contract, the exporter bears the costs and freight for bringing the goods to the port of destination. It includes charges of insurance against the risks of loss or damage to the goods during transit.

Question 4.
Differentiate between Bill of Lading and Charter Party.
Answer:
The distinction between Bill of Lading and Charter Party:

Points of Distinction	Bill of Lading	Charter Party
1. Receipt	It is a receipt of goods on board the ship.	It is not a receipt of goods.
2. Document of title	It is a document of title to the goods.	It is not a document of title.
3. Transferability	It can be transferred freely by endorsement and delivery.	It cannot be transferred.
4. Lease	It is not a lease of the ship.	It is a lease of the ship.
5. Use	It is used when a part of the ship is to be hired.	It is used when the whole ship is to be hired.
6. Stamp	It requires a 25 paise stamp.	It requires a stamp of higher value.
7. Control	Shipowner always retain control on the ship	Shipowner loses control of the ship for a temporary’ period.
8. Crew	Master and crew remain agents of the shipowner.	Master and crew become agents of the exporter for a temporary’ period.
9. Types	(a) Clean(b) Foul	(a) Voyage charter(b) Time charter
10. Collateral security	It can be used as collateral to borrow money.	It can no he used as a collateral-dl to borrow none’.
11. Clauses and Warranties	Does not mention loading and unloading day and lay days.	Mentions days allowed for loading and unloading and lay days.

Question 5.
Explain the various methods of payment in External Trade.
Answer:
External Trade payment can be made through various methods. The important methods for payment of international trade are as follows:

1. Advance Payment
2. Open Account
3. Documentary Bills
4. Letter of Credit
5. Direct Remittance
6. International Credit Card.

1. Advance Payment: Advance payment means the payment made along with the order by the importer as the exporter is always interested in advance payment of the goods exported. The importer can send payment to the exporter by means of:
(a) Bank Draft.
(b) International Money Order.
(c) Telegraphic/Mail Transfer.
(d) Electronic Transfer.

2. Payment against Open Account: Exporter generally ship the goods and send the shipping documents to the importer and make debit his account for the payment due on goods sent. The importer may make periodic payments against his account. This is convenient for both the exporter and the importer. The exporter is relieved of the botheration of drawing and discounting the bills of exchange. The importer is relieved of the botheration of accepting bills of exchange or getting letters of credit in favour of the exporter.

3. Documentary Bill: The exporter draws a bill of exchange on the importer. The bill may be

• Sight Bill, or
• Usance Bill.

In case of a sight bill, the importer has to make the payment immediately and obtain the shipping documents/ This mode is known as Documents against Payment (D/P). In case of a usance bill, the exporter is given some time to make the payment. However, documents are passed on to him against acceptance of the bill. It is known as Documents against Acceptance (D/A) bill.

The exporter draws a bill of exchange on the importer and attaches to it shipping documents such as a bill of lading, insurance policy, invoice, consular invoice, certificate of origin, and certificate of quality. Such a bill is known as a documentary bill. It is sent through the exporter’s bank which will present it to the importer through his bank or agent. Documentary bills may be of two types:

1. D/A Bill: In case of documents against acceptance, the bank will hand over the shipping documents to the importer when the latter gives acceptance on the bill of exchange.
2. D/P Bill: In case of documents against payment bill, the documents are to be released by the bank only on the payment of the bill either at the time of presentation or within a specified period of time.

4. Letter of Credit: The exporter can request the importer to open a letter of credit with his bank in favour of the exporter. When such an arrangement is made, the importer’s bank will accept the bill of exchange drawn by the exporter under the terms of the letter of credit. After acceptance, the bill is returned to the exporter who can get it discounted with his bank. He can also wait till the period of maturity and instruct his bank to collect payment on its maturity from the importer’s bank.

5. Direct Remittance: Under this method, the exporter sends the goods to the importer and also passes on the shipping documents to him. After receipt of documents, the importer can remit the payment to the exporter through the banking channel or telegraphically. This method involves risk for the exporter as the importer may not send the payment in time.

The modes of direct remittance are as follows –
1. Bank Draft: Bank draft is a popular method of making payment in respect of foreign transactions. A bank draft is issued in favour of the exporter by a commercial bank on receipt of the necessary amount.

In fact, a bank draft is a sort of cheque drawn by a bank on its foreign branch, directing the foreign branch to pay the specified amount of money in a particular currency to the person named in the bank draft. The bank charges a nominal commission for providing this service.

2. Telegraphic Transfer: Under this method, there is a transfer by the telegraph or cable of bank deposits from one country to another. As in case of bank draft, the money is deposited with the importer’s bank which will in return send a telegram to its bank in the exporter’s country to pay a specified amount either to the exporter or his bank.

This method of making the transfer is adopted only when the traders are in a hurry to settle accounts. This method is costlier as compared to other methods. That is why it is not commonly used.

6. International Credit Card: Multinational banks issue international credit cards to importers whose financial position are very sound. They make payment through these cards to the exporter for the goods shipped.

Question 6.
What is special Economic Zones (SEZ’s) Explain their benefits in brief?
Answer:
Special economic zones have been set up with a view to encouraging free trade for the pair of promotion of exports. A special Economic Zone is a duty-free enclave deemed to be foreign territory for the purpose of trade operations and duties and tariff. Goods going to SEZ area shall be treated as “deemed exports.” Goods coming from the SEZ area into DTA (Domestic Tariff Area) shall be treated as imported goods. An SEZ may be set up in the public, private or joint sector or by the state government as notified by the control government.

Special Economic Zones (SEZs) Meaning & Functions: A SEZ is a specifically delineated duty-free enclave and is deemed as a foreign territory for the purposes of trade operations, duties and tariffs. SEZ units may be set up for manufacture of goods and rendering of services, products, processing, assembling, trading, repair, remarking, reconditioning, re-engineering including making of gold/silver/platinum jewellery or tides thereof or in connection therewith.

The EPZs are being converted into SEZs. At present, there are four SEZs in India. The only difference between EPZs and SEZs is that in an EPZ customs permission is necessary for taking the raw material from one place to another, but it is not needed in an SEZ.

The SEZs are not subjected to any predetermined value additions, export-obligations, input/output wastage norms and are treated as outside the customer’s territory.

Under the Export-import (EXIM) Policy 2002-2007, SEZs would get income tax benefits. The advantage would be that the tax concession; would be available for the full tax concession period and not curtailed by the expiry of a notified date as happens now. Currently, income tax concessions for SEZs are for 10 years or 2009-10 whichever is earlier. Offshore banking has been presented in India for the first time.

This will provide units in the SEZ access to funds from abroad at international rates. This means that the cost of funds for the exporters from the SEZs would be less. Exporters in the SEZs wanting to raise ADRs/GDRs also need not go to the US and Europe. Sitting here, they will be able to do so using the overseas banking units (OBUs) set up in the SEZs. Units in the SEZs would be able to get world-class security in their backyard itself without having to go looking for it elsewhere. SEZs in India would become more attractive to foreign investors.

SEZs: described as the “best of our dream projects”: would also benefit in a big way with the government deciding to treat bank branches in these zones as overseas branches free of CRR, SLR and priority sector lending requirements. This would help SEZ units, as well as developers in bringing down the cost of funds as overseas branches of Indian banks, are in a position to lend at much lower rates than those prevailing in the Indian market.

SEZ units will also have the freedom to carry out hedging in commodities, make liberal overseas investments out of their export earnings and borrow overseas without being hindered by existing regulations. Ultimately, this could lead the banking sector to go in for global banking centres which can operate like offshore facilities despite their location on Indian soil.

The new exam policy has given a leg uH to banking sector reforms by permitting Indian banks to set up overseas banking units in SEZs. This means that exporters operating out of the SEZ units and developers would be permitted to hold dollar accounts and the OBUs operating out of the SEZs would be able to deal in multiple currencies. Additionally, through OBUs, exporters in SEZs would have access to financing at international costs.

This is because the OBUs would be exempt from CRR, SLR and priority’ sector lending requirements, which would permit them to operate on par with their overseas branches. Under the new scheme, foreign banks registered in India would also be permitted to set up OBUs in SEZs through the finer details of the scheme would be announced later.

Benefits available to Units in SEZs:

1. They can import goods without payment of duty.
2. Reimbursement of central sales tax.
3. Exemption from payment of central excise duty on all goods eligible for procurement.
4. Reimbursement of central excise duty, if any, paid on bulk-tea procured by SEZ units so long as a levy on bulk tea in this regard is in force.
5. Reimbursement of duty paid on fuels or any other^goods procured from DTA as per the rate of drawback notified by the Directorate General of Foreign Trade from the date of such notification.

Question 7.
Explain the various agreements of WTO.
Answer:
WTO Agreements As against GATT which covered only rules relating to trade in goods, the WTO agreements cover trade in goods, services as well as intellectual property. WTO Agreements make the government responsible to formulate the policies and procedure and make them transparent in order to avoid disputes among the nations. Major WTO agreements are discussed below:

Agreements Forming Part of G ATT: The erstwhile General Agreement on Tariffs and Trade (GATT) after its substantial modification in 1994 (effected as part of the Uruguay Round of negotiations) is very much part of the WTO agreements. Besides the general principles of trade liberalisation, GATT also includes certain special agreements evolved to deal with specific non-tariff barriers. Some of the specific agreements contained in the GATT are listed in the bank on GATT 1994 major agreements.

Agreement on Textile and Clothing (ATC): This agreement was evolved under WTO to phase out the quote restrictions as imposed by the developed countries on exports of textiles and clothing from the developing countries. The developed countries were imposing various ends of quota restrictions under the Multi-Fibre Arrangement (MFA) that itself was a major departure from the GATT’s basic principle of free trade in goods.

Under the ATC, the developed countries agreed to remove quota restrictions in a phased manner during a period of ten years starting from 1995. ATC is considered a landmark achievement of the WTO. It is due to the ATC that the world trade in textile and clothing has become virtually quota-free since 1st January 2005, thus, benefiting immensely the developing countries to expand their textiles and clothing exports.

Agreement on Agriculture (AoA): It is an agreement to ensure free and fair trade in agriculture. Though original GATT rules were applicable to trade in agriculture, these suffered from certain loopholes such as exemption to member countries to use some non-tariff measures such as customs tariffs, import quotas and subsidies to protect interests of the farmers in the home country. Trade-in agriculture became highly distorted especially due to the use of subsidies by some of the developed countries.

AoA is a significant step towards an orderly and fair trade in agricultural products. The developed countries have agreed to lower down the customs duties on their imports and subsidies to the exports of agricultural products. Due to their higher dependence on agriculture, the developing countries have been exempted from making similar reciprocal offers.

General Agreement on Trade in Services (GATS): Agreements are applicable to services also like on goods or merchandise, although services are intangible and cannot be toughed like commodities. GATS is regarded as a landmark achievement of the Uruguay Rbiind as it extends the multilateral rules and disciplines to services. It is because of GATS that the basic rules governing ‘trade in goods’ have become applicable to trade in services.

Three major provisions of GATS governing trade in services are as follows –

• All member countries are required to remove restrictions on trade in services in a phased manner. The developing countries, however, have been given greater freedom to decide about the period by which they would liberalise and also the services they would like to liberalise by that period.
• GATS provides that trade in services is governed by ‘Most Favoured Nations’ (MFN) obligation that prevents countries from discriminating among foreign suppliers and services.
• Each member country shall promptly publish all its relevant laws
  and regulations pertaining to services including international agreements pertaining to trade and services to which member is a signatory.,

Agreement on Trade-Related Aspects of Intellectual Property’ Rights (TRIPS): The WTO’s agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was negotiated in 1986-1994. It was the Uruguay Round of GATT negotiations where for the first time the rules relating to intellectual property rights were discussed and introduced as part of the multilateral trading system. Intellectual property means information with commercial values such as ideas, inventions, creative expression and others.

The agreement sets out the minimum standards of protection to be adopted by the parties in respect of seven intellectual properties, viz., copyrights and related rights, trademarks, geographical indication, industrial designs, patents, layout design of integrated circuits, and undisclosed information (trade secrets).

NCERT Most important question:

Question 1.
Differentiate between wholesalers and retailers.
Answer:
Difference between Wholesaler and Retailer:

Basis	Wholesaler	Retailer
1. Scale of Operations	Deals in large quantities and on a large scale.	Deals in small quantities and on a small scale.
2. Number of items	Handles a small number of items.	Handles a large number of items.
3. Trade Channel	First outlet in the chain of distribution	The second outlet in the chain of distribution
4. Customers	Sells to retailers and industrial users.	Sells directly to customers for final consumption.
5. Supplies	Receives goods from manufacturers/producers.	Receives goods from wholesalers and sometimes, from the manufacturers.
6. Location	The location of a wholesaler’s shop is not very important. A wholesaler may have a godown at any place.	Location of retailer’s shop near the residential areas is very important. It located in the heart of the city.
7. Window Display	The window display is not very important.	The window display is a must to attract customers.
8. Specialisation	Specializes in the products he deals in	Specialization is not possible as he deals in a large number of products produced by different producers.
9. Margin of Profit	Sells at a very low margin of profit as turnover is very fast.	Sells at a higher margin of profit as he has to spend on window dressing and pay higher rent for the shop at a central place.
10. After-Sale Service	Does not provide after-sale service.	Provides aftersale service.
11. Free Home Delivery	Does not provide free home delivery of goods to customers.	Provides free home delivery of goods to Customers.
12. Display	No window dressing and shop decoration are important.	Window-dressing and shop decoration are much more important to attract customers.

Question 2.
Mention the services provided by wholesalers to retailers.
Answer:
Services to Retailers:
Wholesalers render the following services to retailers –
1. Wide Variety: A retailer has to stock a large variety of products to meet the individual tastes and needs of its customers. Since he can easily purchase the required goods of different varieties from a wholesaler, he is relieved of the botheration of collecting goods from several manufacturers.

2. Regular Supplies: A wholesaler is always well stocked with different types of goods. Therefore, the retailers are assured of a quick and regular supply of their requirements from time to time. They need not maintain a large stock of goods and have no fear of running out of stock. The wholesaler serves as their warehouse keeper from whom they can quickly replenish their stocks. The wholesaler saves the retailers from the trouble of searching out and assembling goods from several manufacturers.

3. Specialisation: The wholesalers generally specialize in one line of goods. They buy good quality goods at the minimum possible price from the manufacturers. Retailers receive the benefit of such specialization when they buy goods from wholesalers. Wholesalers advise retailers on matters like quality, price, and timing of purchase. They inform the retailers about the new products, their uses, quality, prices, etc. They may also advise on the decor of the retail outlet, allocation of shelf space, and demonstration of certain products.

4. Publicity: Wholesalers advertise their goods regularly. Such publicity helps retailers in increasing their sales. Some wholesalers also guide retailers’ in-store layout and selling techniques. The retailers are benefited as it helps them in increasing the demand for various new products.

5. Credit: Wholesalers grant liberal credit facilities to retailers. As a result, retailers can carry on a large volume of business even with a small amount of working capital. They would be placed in a difficult position if they were to buy goods on cash payment.

Question 3.
List the various types of retail trade organizations.
Answer:
Types of retail trade organization:
Retail traders may broadly be classified into two categories –

Question 4.
Explain the automatic vending machine as a source of retail trade.
Answer:
Automatic Vending Machines:
A vending machine is a new and complementary form of retailing. It is a slot machine operated by coins or tokens. The buyer inserts the coin or a token into the machine and receives a specified quantity of a product from the machine. Vending machines are used to sell prepacked and low-cost products of mass consumption, soft drinks, hot beverages, cigarettes, tickets, etc. In Delhi, Mother Dairy sells milk through vending machines.

The vending machines have become popular due to convenience in the handling of products and in the collection of payment. The customer gets a fresh supply of goods with uniform weight and quality. Moreover, vending machines can sell goods at places and at times when other types of retailing are not convenient or economical. There is a saving of labor costs. But initial investment in the machine is quite high. The machine requires regular repairs and maintenance.

The merits of vending machines are as under –

1. It is convenient for the customers to buy the goods from the machine.
2. Machines provide quick service.
3. Machine develop the habit of self-service among the customers.
4. Special peeks are to be developed by manufacturers that suit the machine.
5. Care has to be taken about replenishing the stock of the machine regularly.
6. Machines are useful in selling only consumer goods that are usually edible in nature i.e. candies, chocolate, soft drinks, coffee, etc.

Question 5.
Write an essay on the organization of wholesale trade.
Answer:
Organization of Whole Trade Board of Directors

Wholesale trade is generally carried on a large scale and a large amount of capital investment is required for it. Therefore, a wholesale firm is generally organized in the form of a joint-stock company or a partnership. The company works under the overall supervision of the board of directors and the managing director. The organization is divided into sections. Every section is managed by a sectional head. All sectional heads are responsible to the managing director. Each section is divided into various departments. The head of each department is accountable to the sectional head concerned.

The organization of wholesale trade may be divided into the following sections –
1. Administrative Section:
This section looks after the overall planning and control of the wholesale trade. It is usually divided into several departments.
(a) Records and filing department: This department handles the firm’s records and files. Filing relates to having records of the business correspondence for future reference. Proper binding is also necessary for an easy and quick location of files, whenever required.

(b) Correspondence department: This department is responsible for the receipt, typing, and despatch of all letters. Timely and prompt reply of all incoming letters is essential for the success of a business. A copy of every letter sent by the firm is sent to the filing department for ready reference.

(c) Accounts and finance department: This department is concerned with the proper maintenance of the firm’s accounts. These accounts are related to the firm’s purchases, sales, receipts, payments, debtors, creditors, etc. This department is also responsible for preparing budgets and raising the necessary funds for a business. This department works under the supervision and control of the chief accountant and clerks working under him.

(d) Labour department: This department is responsible for the recruitment, selection, training, remuneration, promotion, etc. of employees.

2. Cash Section:
This section is concerned with the receipt and payment of cash. It is the responsibility of this section to ensure that all payments are made promptly and on the due dates so that the firm enjoys a good credit standing in the market. Similarly, this department takes steps for prompt collection of debts from the firm’s debtors in order to minimize bad debt losses. For handling small payments, there is a petty cashier who is provided a small amount of impress cash. When he has spent the entire amount, the head cashier advances him some more important cash.

In some wholesale firms, there is a separate credit and collection department which keeps a check on the credit sales.

3. Planning and Executive Section: This section consists of the various functional departments.
(a) Buying department: This department is concerned with buying goods in bulk from different producers. Before buying goods it invites Quotations from the producers. After comparing different quotations with regard to price, quality of goods, delivery period, etc. it places its orders.

When the goods are received, they are compared with the order. If there is any discrepancy or damage to goods, the matter is duly settled with the supplier. After receiving the goods, arrangements are made for their storage. The buying department is headed by an expert buyer who has complete knowledge of the various producers and the market conditions.

(b) Sales department: This department is responsible for selling the goods to retailers. It conducts market surveys to find out the tastes, fashions, etc. of the customers and other market conditions. This information is passed on to the buying department. The sales department also handles the complaints of retailers. The sales manager is the head of this department. Several salespersons work under him. Their recruitment, training, remuneration, etc. is also the responsibility of the sales manager.

(c) Publicity department: This department is concerned with advertising goods in order to create demand. It also arranges fairs and exhibitions of products.

(d) Despatch department: The function of this department is to despatch goods to various retailers according to the instructions it has been given. It handles packing, marking, and labeling of goods and arranges for the delivery of goods to the retailers. Many wholesale firms have a separate warehousing department also.

Question 6.
What are multiple shops or chain stores? Explain its features, merits, and limitations.
Answer:
Chain-Stores (Meaning): Chain stores or multiple shops are a group of branch shops dealing in the same line of goods under single ownership and centralized management. A chain store is a chain of identical retail stores situated in different localities. Such a chain may be established by a manufacturer or by a merchant. It is known as chain stores in the United States and multiple shops in Europe. Bata Stores and DCM Stores are examples of chain stores in India. These normally deal in standardized and branded consumer products that have rapid sales turnover.

Distinctive Features:

1. Large Size: Chain stores are an example of large-scale retail establishments. These are located popularly in the area where a sufficient number of customers can be approached.
2. Company Form: These stores are organized as a joint-stock company. All stores are owned and controlled by the same company. There are centralized management and control.
3. Specialization: All stores in a chain deal in the same line of products, usually necessities.
4. Centralized Purchasing: Goods for all chain stores are purchased by the head office. Through centralized purchasing. These shops enjoy economies of scale.
5. Decentralized Selling: Chain stores are situated in different parts of the city and country. These shops are run by the same organization and have identical merchandising strategies.
6. Elimination of Middlemen: A chain store is a form of direct selling in which middlemen are eliminated.
7. Uniform Price: Goods are sold in all the stores at a fixed price.
8. Standardization: Decoration of stores and window displays follow a uniform style or pattern.
9. Cash Sales: Goods are sold on a cash and carry basis. There is no loss on account of bad debts.

Merits:
1. Economics of Scale: Goods for all chain stores are purchased by the head office. Such bulk buying results hr several economies like heavy discounts, saving in transport costs, etc. Benefits of specialization and centralized management are also available. Large capital permits expansion and growth.

2. Convenient Location: Chain stores are located to suit the conveniencFoftheeustometa. This helps in increasing sales turnover and in retaining contact with customers. These shops me located in fairly populous localities where a sufficient number of customers can be approached.

3. Low Operating Costs: Chain stores sell goods on a cash basis H so that there is no loss due to bad debts. There is an economy in advertising because one advertisement is enough for all the stores. Large and rapid turnover and common advertising are possible.

4. Low Price: Due to low operating costs and the elimination of middlemen, goods are sold at relatively cheaper rates. A manufacturer can establish direct contact with customers through chain stores.

5. Flexibility: If one store out of stock, supplies can be easily transferred from a nearby store belonging to the same chain. Such inter-branch transfers help to avoid loss due to shortage or surplus of stock. If a branch is not doing well it can easily be closed down and a new one can be opened in another place without really affecting the profitability of the organization as a whole.

6. Public Confidence: Fixed prices arid standard quality help to increase confidence among consumers. Customers can easily identify the chain stores on account of uniform decoration and design.

7. Diffusion of Risk: Lack of demand in one area 4oes affect the
sales in other stores. But the loss incurred by one store can easily be absorbed by profits made in other stores reducing the risk of an organization.

8. Simplicity of Control: Goods are sent to the different stores by the head, office and cash receipts are sent by each branch to the head office. Price and the other policies are uniformly laid down for all the stores. In this way, the office can exercise effective supervision and control over all the branches.

Limitations:
1. Limited Choice f Ghain deal in a limited range of products and do not offer a wide variety of choice to customers,

2. Lack of Personal Touch: The paid employees of chain stores do not take a personal interest in each and every customer Tltey adopt a ‘take it or leave it’ attitude towards the customers. The owner loses all personal contracts with the customer Lack of initiative in the employees some times leads to indifference and lack of personal touch in them

3. Lack of initiative: The employees of chain stores have no freedom to make decisions. Rigid control and uniform policies discourage initiative on their part. They cannot exhibit business opportunities or adapt to local needs. This makes them habitual of looking up to the head office for guidance on all matters and takes away creative skills of their own.

4. Heavy Overheads: The head office has to incur heavy expenditure on rent, wages, salaries, furniture, fixtures, etc.

5. No Facilities: Customers do not get credit, home delivery, or other facilities. Therefore, chain stores do not attract rich customers. This discourages certain types of people to visit multiple shops.

6. Local Competition: Chain stores are considered a threat to small independent retail stores. Therefore, local retailers are hostile towards these stores and offer tough competition.

7. Remote Control: The head office is usually far removed from the stores. Therefore, there is a lack of close contact between them.

Question 7.
Super Market is the most famous retail trade-in city. Mention its merits and demerits.
Answer:
Super Market (Self-Service Store):
Meaning:
A supermarket of Bazar is a large retailing business unit selling a wide variety of consumer goods such as food and grocery items on the basis of the low-margin appeal, wide variety, and assortments, self-service, and heavy emphasis on merchandising appeal.

A supermarket deals mostly in food and grocery items and convenience goods like household goods, hosiery items, cosmetics, medicines and drugs, electronic appliances, etc. It is generally situated at the main shopping center. Goods are kept in open racks, and the price and quality are clearly labeled on the goods.

A consumer can make a selection of goods moving from counter to counter and pick up the selected goods and place them in a trolly. After he has completed his selection, the trolly will be carried to the exit where a person computes the total charge and the buyer makes payment to the cashier and then takes delivery of goods. Thus, supermarket follows the policy of self-help’ by the customers. The customers are not pressurized by the salesmen. That is why many people are attracted to the supermarket.

The supermarket is organized on a departmental basis and a customer can buy various types of goods under one roof. A supermarket can be differentiated from the departmental store on the main ground that there are no salesmen at the super Bazar to deal with the customers. The customers are free to choose the commodities of their choice. Moreover, a supermarket does not offer certain services which are usually provided by a departmental store. For instance, a supermarket does not allow credit sales and does not provide free home delivery service.

Features:
The main features that distinguish a supermarket from other retail institutions are discussed below –

1. A supermarket generally carries a complete line of food items and groceries in addition to non-food convenience goods including drugs, cosmetics, household goods, etc.
2. Its organization resembles a departmental store. A customer can buy his requirements under one roof.
3. A supermarket operates on the principle of self-service. There are no salesmen or shop assistants to help or pressurise the customers in a supermarket. That is why it is known as a self-service store. The distribution cost is, therefore, lower.
4. A supermarket is a low-cost retail institution in comparison with Other types of retail stores. The prices of the products are generally lower than other types because of bulk purchasing, lower operational cost, and low-profit margins.

Merits:
The following are the merits of a supermarket –
1. A supermarket is a large-scale retailing store. It enjoys all the benefits of large-scale buying and selling. Because of this reason and because of large turnover, its operating costs are lower and it can sell goods at cheaper rates. These outlets are not only convenient but also economical to buyers for making their purchases.

2. Considerable attention is paid to the package of the products since there are no salesmen to convince and pressurize the customers. Many people like this distinct feature of self-service. They enjoy the freedom to ccunpar£-iii£fereat4minda of Q.product- and making a selection of goods without pressure from anybody.

3. The customers can make all their purchases under one roof. A supermarket provides goods to customers at cheaper rates because of large turnover and absence of salesforce. The administrative and distribution overheads per unit of a product are also lower.

4. Since supermarket sells only on a cash basis, there is no chance of bad debts.

Demerits:
A supermarket suffers from the following drawbacks –
1. There are certain people who give greater weightage to personal attention. Such people do not like shopping through the supermarket as there are no salesmen.

2. Supermarkets cannot handle commodities that require personal explanation by the salesmen. It works on the self-service principle.

3. Some customers handle the goods carelessly and misuse the ‘ opportunity of self-service and selection. This may cause loss to the supermarket.

4. In practice, supermarkets have not been able to create low price appeal among the customers because of higher overhead expenses.

5. Establishment and, running off a supermarket requires huge; investment, and its turnover should be higher to keep the overhead expenses under reasonable limits. Thus, a supermarket cannot be established if the necessary capital is not available and a Jarge turnover is not expected. In other words, supermarkets are not suitable for smaller towns.

Question 8.
Write in brief about Telemarketing or Teleshops in the modern world.
Answer:
Telemarketing (Teleshops): Telemarketing means a form of non-store retailing in which the seller initiates contact with a shopper ‘ and closes the sale over the phone. A telemarketer may procure the names and telephone numbers of his prospective customers from the telephone directory and other sources.

Popular products such as electrical appliances, health products, and educational aids and services such as magazine subscriptions, credit-card membership, etc. can be promoted through telemarketing. ICICI and Citibank follow this technique to popularise their credit cards among people.

A telemarketer can advertise the product, its features, uses, and price through a TV network, say Doordarshan, Metro, Zee TV, or Sony TV channel. The interested customer can place an order directly over telephone, fax, e-mail, or by post to the advertiser, say, Asian Sky Shop. The delivery may be effected through courier, or post office, or the manufacturer’s distribution van. Payment is to be made at the time of delivery. Telemarketing is a very convenient method of shopping. It is becoming popular in India.

From the point of view of the customer, buying or ‘dial-n-order’ is a very convenient method of shopping. One need not visit the store for shopping. One can place an order over the phone and make payment through a credit card. Teleshopping and getting free home delivery at residence is not only convenient but also cheaper as no middlemen are involved. The popularity of telemarketing would be attributed to the growing focus on customers.

From the point of view of the seller, telemarketing is a cheaper method of retailing. It saves expenditure on retail showrooms and salesforce. Even a firm with retail outlets or stores in major cities can reach customers at far off places through telemarketing. The growing satellite networks have created brand awareness and facilitated Telebuying and selling. The industry grew rapidly over 5 years to reach a size of2000crores with over one million consultants.

Telemarketing is a major tool of direct marketing in the USA and is gradually gaining acceptance in India. But telemarketing has the disadvantage of lack of personal touch with the buyers. Moreover, the buyer can’t inspect the goods personally before placing an order. Some people don’t like teleshopping. They get irritated when they receive unsolicited calls from the call centers, say, for the marketing of credit cards or personal loans.

Question 9.
What are Internet or Online marketing, its benefits, and the difference between traditional marketing and online marketing?
Answer:
Internet Marketing:
Internet marketing is emerging as an important form of e-commerce, In this form of marketing, orders are received and processed on the internet. The internet is the world’s largest computer network. In fact, it is a ‘network of networks’ of computers throughout the world. A computer network is basically a bunch of computers hooked together for receiving and transferring information.

The facility of linking millions of computers is provided through the internet. The use of the internet by marketers or producers for the purpose of selling their products is known as internet marketing. Internet marketing can take several forms e.g. Online services, worldwide webs (www), and CD ROMs.

Internet:
The internet is a global web or computer network that makes instantaneous global communication possible. Internet usage has surged with the development of the user-friendly World Wide Web (www) and Web browser software such as Microsoft Internet Explorer or Netscape Navigator. Users can surf the internet and send e-mails, shop for products, and can get news and other information.

The internet itself is free though the user has to pay some fee to the Internet Service Provider to be hooked up to it. Thus, the internet is changing the way marketing is done. Internet technology provides marketers with faster ‘ more efficient and much more powerful methods of designing, promoting, and distributing products, conducting research, and gathering market information.

Online Marketing:
The users of the internet are younger, educated, and more affluent. Business firms can use the internet to reach such users by sending catalogs, price lists, etc. through e-mail. Besides advertisement, the sellers can attend to the queries of the buyers and clinch the deal on-line. The buyers can on their own also log on the t computer to know about the products of different manufacturers and decide to buy the products that suit them.

The use of electronic channels for the direct marketing is on the rise these days. The term e-commerce describes a wide variety of electronic platforms such as the sending of purchase orders to suppliers via electronic data interchange (EDI), the use of fax and e-mail to conduct transactions, the use of ATMs (automated teller machines) and smart cards to facilitate payments and obtain digital cash and the use of internet an online > services.

Thousands of business firms have established their presence on the internet. A new firm, big or small, can do so in two ways:
(a) It can buy space on a commercial on-line service; or (b) It can open its own website. In the case of online service, the firm has to pay an annual fee and also a small commission as a percentage of sales.

But these days, companies prefer to set up their own websites. Such a website offers information * about the company’s history, products, and services. The company can interact with anyone visiting the website and explore the possibility of concluding sales.

Benefits of Online Marketing:
The marketers can enjoy the following benefits of internet marketing –

1. The cost of digital catalogs is much less than the cost of printing and mailing paper catalogs;
2. Digital catalogs can be revised quickly and without much difficulty.
3. The marketers achieve economy in operations. They have to maintain low inventories and incur low costs on storage and insurance.
4. Internet marketing helps in relationship building with the customers. Online marketers can interact with customers and learn from them and improve their products.
5. Marketers can contact the people who have visited their website and make them attractive offers to affect sales.
6. Orders can be received quickly.
7. The marketers can approach customers living anywhere in the world. Thus, there is no distance gap between the sellers and the buyers.
8. Marketers can size up the audience, know how many people visited their online site. This information helps in improving sales offers and advertisements.
9. Online marketers can build relationships with customers by interacting with them.

Comparison of Online and Traditional System of Marketing

	Online Shopping	Traditional Shopping
Advantages	ConvenienceSaves timeReduces impulse buying	Five senses influence buyingMemory triggerProduct sampling Exposure to new items Social interaction
Disadvantages	Less price and selection controlForget itemsReliance on computerDelivery fee	Time-consumingWaiting for lines and parkingCarrying groceries homeImpulse buying Safety

Question 10.
A franchise is a buzzard in the modern marketing world. What are its merits and limitations?
Answer:
Franchise: Franchise is a commercial concession by which a company or person grants a retailer the right of selling its products or services in a specified area. The owner of a product (known as a franchiser) permits another business firm (called franchisee) to sell the product in exchange for royalty payments.

The franchise is the right or privilege to use an established business system is “a continuing relationship in which franchisee provides licensed privilege to do business plus assistance in organizing, training, merchandising and management in return for a consideration from the franchise.” A franchising operation is a contractual relationship between a franchiser and franchisee.

Thus, the franchise is a system under which the owner of a product or service grants the franchisee the exclusive right to distribute the product or service in a specific geographical area on specified terms and conditions. The owner of the product or service who grants the right to distribute is known as the franchiser. The person or firm who acquires the right or franchise is called the franchisee.

A franchise system is one in which a manufacturer grants selected retailers the exclusive right to sell their products or services in specified areas. Such retailers are required to promote and sell the product in a specific manner. There is a written agreement between the franchiser (supplier) and the independent franchisee (retailers) on the terms and conditions of the franchisee.

The franchise is found in several types of businesses. Consumer items such as cosmetics, readymade garments, television sets, V.C.R., music system, computers, machinery and equipment, automobiles, servicing of consumer durables, computer training, real estate are some of the examples where the franchise is popular. Wimpy, Nirulas, Essex farms, Snowhite Drycleaners, etc. are notable examples of franchises in India.

The franchiser receives either a fixed sum or periodical royalties for allowing the use of trademark and providing training. The franchisee pays for a reliable and proven business. He gets professional advice and national sales promotion support from the franchiser. Generally, all franchised outlets of a product or service have an identical trademark, standard symbols, standardized products, and uniform business policies. The franchisee has to raise his own finances.

Franchise arrangements may be of the following types –
1. Product and Trade Name Franchise: In this arrangement, the franchisee acquires the right to use the product and trade name of the franchiser. The franchisee can also use window-display, standardized operating procedures,s and a prescribed territory to the franchisee.

2. Exclusive Dealership: Under this system, a manufacturer signs an exclusive agency contract, with a distributor. The distributor gets the exclusive right to sell the product within a specified geographical area. The distributor agrees to certain conditions of the manufacturer, e.g. adequate stock, prices to be charged, the services to be provided, etc. The exclusive dealership is popular in automobiles.

3. Conversion Franchising: Herein an established businessman gets affiliated with a franchiser. The two share the benefits of a franchising relationship.

4. Combination Franchising: In this arrangement, two franchises share a location and management, site selection, training of the staff, financing, and marketing, record keeping, and production business also arranged.

5. This is a fully integrated and continuous relationship between a franchiser and franchisee. The relationship covers total operations of the franchise including product or service, trademark quality control, strategy, etc. Fast food restaurants such as McDonald’s are an example of such a franchise.

Merits:
The main advantages of the franchise are as follows –
1. Availability of Established Brands: The franchisee acquires the right to use the popular brand name or trademark of the franchiser. Association with an established name provides a ready market. A franchise gives a quick and easy start in business. There are greater chances of success of the franchisee because the products are well known.

2. Standardised Goods and Services: The reputation of the franchiser depends largely on the quality of products and services supplied by the franchisee. The franchiser takes steps to ensure that products and services in all the franchised outlets are uniforms. He provides the raw materials and keeps close control of the quality of goods. The quality of products helps the franchisee to satisfy his customers by offering quality products.

3. Advertising Support: The franchiser carries on advertising. The franchisee gets the benefit of such advertising and the reputation or goodwill of the franchiser. The products are well advertised in various media and are known to the people. It is easier for the franchisee to promote the sale of products.

4. Financial Assistance: Franchiser offers a wide range of financial assistance to the franchisee in the form of short-term credit, lower down payment, flexible repayment terms, etc. Financial assistance is available for plant and equipment, accounts receivable, etc.

5. Managerial Training: Franchisers provide technical and managerial training to franchisees and their staff. Prior to opening a franchise, counseling and training are provided in the professional and profitable operation of the business and in the fields of inventory management, accounting, sales promotion, advertising, etc. Assistance is also available in site selection, marketing research, in addition to ongoing business assistance.

6. Established Business Methods: The franchisee can capitalize on the accumulated knowledge, experience, and skill of the franchiser. He does not have to build a business from scratch. The franchisee buys a business that has proved its success and can, therefore, avoid many of the pitfalls faced by small business owners. The franchiser makes huge investments in the innovation of products and research and development.

7. Economies of Scale: Due to the group or cooperative purchasing,
costs of products are reduced. Mass buying provides economies of scale. The distribution system between franchisor and franchisee in the shortest possible time. Marketing costs are lowered.

8. Uniform Control System: All franchising outlets are subject to the uniform control system. Standardized inventory control enables the franchiser to have more accurate information about the merchandise available and needed. Standardized reporting procedures are also helpful. It enables the franchiser to increases his goodwill and reputation.

9. Higher Success Rate: On average, franchises survive better than other business start-ups. The success rate, of franchises, is higher than that of independently owned businesses, Therefore, franchises are more attractive to middle-aged people who are less willing to take full risk of starting their own business. Potential income can be higher than independent small businesses.

10. Benefits to Franchiser: Franchise enables the franchiser to enter a new business territory at a low cost. It is a relatively quick way to raise cash and expand business operations. Owner-operators (franchises) are highly motivated. Franchises can be used as outlets for goods and services manufactured or supplied by the franchiser. This provides economies of scale in manufacturing and purchases. The franchiser can exercise control over products, services, and processes. The franchiser gets feedback about the product’s popularity from the franchisee.

Limitations:
The franchise system suffers from the following disadvantages –
1. Fees and Royalties: Costs of a franchise include license fees and fees for the initial processing of the application. It is payable when the franchise agreement is signed and is not refundable. Other costs include down payment on equipment, decoration of the outlet, office furniture, publicity on opening, etc. The franchise has to bear travel and living expenses while undergoing training. In addition, He has to pay a royalty on a continuing basis.

2. Lack of Freedom: The franchisee does not have the freedom to run a business like an independent owner. He has to conform to the controls exercised by the franchiser to ensure quality and uniformity of standards of product or service. Quality standards and specifications for all items used in the franchise are established. The freedom of purchasing is also restricted.

3. Limited Product Line: The franchiser controls the products or services sold at the franchisee’s outlet. The franchisee cannot introduce other products except those permitted by the franchiser.

4. Restriction on Sale of Franchise: Sale, transfer, or assignment of ownership interest requires the franchiser’s approval. Even when the sale is approved, the new franchisee is required to conform to the terms and conditions of the franchise.

5. Disadvantages to the Franchiser: The franchiser cannot treat or control the franchisees like his employees. Franchisees tend to become quite vocal and demanding if they feel they are not getting fair treatment or do not see benefits in the franchise network. Extensive communications are necessary and the costs of visiting the franchisees at distant places can be high. The franchiser has to bear the expenses of administration, training, advertising, legal services, supervision, etc.

NCERT Most important question:

Question 1.
Write the full form of the following:
SIDO, KVIC, DIC, LPG, NABARD, RSBDC, NSIC, StDBI, NCEUS, RWED, WASME, SFURTI, DWCRA, TRYSEM, WTO.
Answer:

(i) SIDO	Small Industries Development Organisation
(ii) KVIC	Khadi and Village Industries Commission
(iii) DIC	District Industries Centers Liberalisation, Privatisation and Globalisation
(iv) LPG	Liberal isation. Privatisation and Globalisation
(v) NABARD	National Bank for Agriculture and Rural Development
(vi) RSBOC	Rural Small Business Development Centre
(vii) NSIC	National Small Industries Corporation
(viii) STDBI	Small Industries Development Bank of hid la
(ix) NCEUS	The National Commission for Enterprises in the IJnorganised Sector.
(x) RWED	Rural and Women Entrepreneurship Development
(xi) WASME	World Association for Small and Medium Enterprises
(xii) SFURTI	Scheme of Fund for Regeneration of Traditional Industries
(xiii) DWCRA	Development of Women and Children in Rural Areas
(xiv) TRYSEM	Training of Rural Youth for Self-Employment
(xv) WHO	World Health Organization

Question 2.
Compare different small scale business on the basis of the investment.
Answer:

Types of Industries	Investment Unit	Remarks
Small Scale Industry	One crore	Up to 5 crores in export
Ancillary Industry	One crore	50% of output should be supplied to a parent unit
Tiny Enterprise	25 lakh	—
Service and Business enterprise	10 lakh	—
Women Enterprise	Any of the above	51% equity holding by women and managed by women.
Export Oriented Unit	One crore	100% EOU can sell 25% in the domestic market.

Question 3.
Name the major industry groups that come in the small scale sectors.
Answer:
The following major industry group comes in the small scale sectors:

1. Food Products
2. Paper Products and Printing
3. Chemical and Chemical Products
4. Basic Metal Industries
5. Electrical Machinery and Parts
6. Rubber and Plastic Products
7. Machinery and Parts expect Electrical Goods
8. Hosiery and Garments – wool product
9. Non-metal lie Mineral Products
10. Transport Equipment and Parts
11. Leather and leather products
12. Miscellaneous Manufacturing Industries
13. Beverages, Tabacco and Tobacco products
14. Repair Services
15. Cotton Textiles
16. Wool. Silk, Synthetic Fibre, and Textile
17. Jute, Hemp, and Mesta Textiles
18. Other Services.

Question 4.
What are the different forms of support offers to small industries by the Government?
Answer:
The Government provides support to anal industries in the following forms:

1. Institutional support in respect of credit facilities.
2. Provision of developed sites for the construction of sheds.
3. Provision of trading facilities.
4. Supply of machinery on hire purchase terms.
5. Assistance for domestic and export marketing.
6. Technical and financial assistance for technological Upgradation.
7. Special incentives for setting up enterprises in backward areas.

Question 5.
What are the main characteristics of a small business?
Answer:
Any small business is characterized by at least two of the following key features:

1. Management is independent. Usually, the managers are also owners.
2. Capital is supplied and ownership is held by an individual or a small group.
3. The area of operations is mainly local. Workers and owners are of one home community. Markets need not be local.
4. Relative size within the industry the business is small when compared to the biggest units in its field. The size of the top bracket varies greatly so that what might seem large in one field would be definitely small in another.

Question 6.
Distinguish between cottage and small scale industries.
Answer:
The basis of classification between the cottage and small-scale business is that the cottage industry embraces a predominantly manual process of work.

The difference between the small-scale and cottage industries are basically two:

1. Small-scale industries are mainly located in urban centers as separates establishments, the cottage industries are generally associated with agriculture and provide subsidiary employment in rural areas.
2. Small-scale industries produce goods with partially or wholly mechanized equipment employing outside labor, while cottage industries involve operations mostly by hand which is carried on primarily with the help of members of the family.

Question 7.
What are the main objectives/features of small scale business?
Answer:
Objectives of small-scale business:

1. To provide an opportunity for large-scale employment at a minimum cost.
2. To provide a steady source of income to the low-income groups living in rural and urban areas of the country.
3. To meet the growing demands of the consumer’s goods and simple producers goods.
4. To mobilize resources of capital and skill and their optimum utilization.
5. To eliminate the economic backwardness of rural and underdeveloped regions in the country.
6. To attain self-reliance.
7. To reduce regional imbalances.
8. To effect an integration of the activities of a small business with the rural economy on the one hand and with the large scale business on the other.
9. To reduce disparities in income, wealth, and consumption.
10. To provide substitutes for various industrial products now being imported into the country.
11. To improve the quality of industrial products manufactured in the cottage industry sector and to enhance both production and exports.
12. To remove the problems created by urbanization and the consequent growth of big towns and cities.

Question 8.
Discuss the role and importance of small-scale enterprises in the economic development of India?
Answer:
The small-scale sector promotes entrepreneurship and helps to earn foreign exchange and is very important to the Indian economy.

The following points will highlight the importance of small scale enterprises.

1. Innovation and productivity: It is the small-scale enterprises that lead to innovation and productivity although they do not maintain their own research and development wings.
2. Individual tastes, fashion, and personalized service: Small- scale firms are receptive to change in taste and fashions of consumers and in adjusting the production process accordingly.
3. Symbols of national identity: They are locally owned and controlled. They can strengthen the social system and cultural traditions of India. They are perceived as valuable symbols of national identity.
4. The tendency of dispersal over wide-area: Small-scale enterprises have a tendency to disperse over wide areas. More than 62.19% of the units are located in the backward areas.

Question 9.
What type of problems faced by small scale sector in the field of marketing?
Answer:
Problems faced by the small scale sector in marketing their products are briefly enumerated below:

• Lack of standardization.
• Financial weakness.
• Unfamiliarity with expert activities-procedures and market know-how.
• Poor designing.
• Poor quality.
• Ignorance of potential markets.
• Competition.
• Lack of quality control.
• Lack of precision.
• Lack of knowledge of marketing.
• Distribution contacts.
• Poor finish.
• Poor bargaining power.
• Brand preferences.
• The scale of production.
• Lack of service after-sales.

NCERT Most important question:

Question 1.
Explain the meaning of finance and its importance in business.
Answer:
Significance of Business Finance: Business is concerned with the production and distribution of goods and services for the satisfaction of the needs of society. For carrying out various activities, business requires money. Finance is the lifeblood of business.

No business firm can carry on its operations smoothly and successfully without the availability of the right amount of funds at the right cost and at the right time. In the absence of finance, the production and selling of goods and services are not possible.

The success of a business enterprise depends, to a great extent. On the manner in which it raises, employs, and disburses its funds. In business, finance is required
(a) for establishing an enterprise
(b) for purchase of fixed assets and current assets, i.e. for carrying on present operations
(c) for expansion, growth, and modernization of business.

In modern business, the significance of business finance has increased due to an increase in the scale of business, use of capital-intensive techniques, shortage of finance, and increase in competition.

Adequate finance provides the following benefits to a business concern:

1. The firm can meet its liabilities in time. Prompt payment of debts helps in raising its credit-standing. As a result, the firm can easily borrow funds as and when necessary.
2. The firm can take advantage of business opportunities For example, it can buy materials in bulk at a low price.
3. The firm can carry on its business smoothly and without any interruptions.
4. The firm can replace its plant and machinery in time, thereby improving the efficiency of its operations.
5. The firm can face recession, trade cycles, and other crises more easily and confidently.
6. The requirement for fixed and working capital increases with the growth and expansion of the business. At times, additional funds are required for upgrading the technology employed so that the cost of production or operations can be reduced.

Question 2.
Explain in brief the various types of business finance and their uses.
Answer:
Types of Business Finance and their uses:
On the basis of nature and purpose served finance used in a business is of the follow ing kinds –
1. Long-term Finance:
Long-term sources fulfill the financial requirement of an enterprise fora period exceeding 5 years. Long-term finance refers to the fundraised for a long period of time. Such finance is used for investment in fixed assets such as land, building, plants, machinery, furniture, fixtures, etc. Fixed assets are those assets that are required for permanent use and are not meant for sale. Long-term finance is used for meeting the permanent needs of businesses. It is used again and again to generate revenue.

Such finance cannot be taken out of the business without closing down the firm or without reducing the scale of operations. Long-term finance is raised from shareholders, debenture holders, financial institutions, and retained earnings. The amount of long-term funds required depends upon the nature and size of the business. For example, a factory requires more long-term funds than a shop.

Similarly, a large factory needs greater long term funds than a small factory. Long-term sources of finance include shares and debentures, long-term borrowings, and loans from financial institutions.

2. Medium-term Finance:
This type of finance is required for investment in permanent working capital and for repayment of assets. It is also used for modernization and expansion. It is raised for a period of more than one year but less than five years. Medium-term finance is raised from debenture holders, financial institutions, public deposits, and commercial banks.

3. Short-term Finance:
Short-term funds are those which are required for a period of not exceeding one year. It is used for meeting the short-term needs of the business. It is also known as working capital. Working capital is the capital required for meeting the day-to-day needs of the business, e.g. purchase of materials and payment of wages, salaries, rent, taxes, freight charges, etc. short-term finance is raised from public deposits, commercial banks, trade credit, factoring, customer advances, etc.

Short-term funds can be used over and over again from year to year. Seasonal businesses that must build inventories in anticipation of selling requirements often need short-term financing for the interim period between seasons. Wholesalers and manufacturers with a major portion of their assets tied up in inventories or receivables also require a large number of funds for a short period.

Question 3.
What is the term Trading on Equity? Explain with the help of an example.
Answer:
Trading on Equity:
Trading on equity is an arrangement under which the management raises funds by issuing securities that carry a fixed rate of interest or dividend which is less than the average earnings of the company to increase the return on equity shares. If a company can earn more than the rate of fixed dividend or interest, excess earnings will goto equity shareholders; and they would thereby earn higher earnings per share than they would have without the use of gearing of capital structure.

For instance, Mahindra company has an equity capital of Rs.40,00,000, and Kodak company has an equity capital of Rs. 16,00,000 and 15% debentures of Rs.24,00,000. Both have earnings of Rs. 10,00,000 which is 25% on the total capitalisation of Rs.40,00,000. Assuming the tax rate of 50% on corporate income, the shareholders of Kodak company will have the benefit of trading on equity. Their return is 20% compared to 12.5% in the case of Mahindra Company as shown in Table.

Question 4.
Differentiate between Equity Share and Preference Share
Answer:
Difference between Equity Share and Preference Share:

Basis	Equity Share	Preference Share
1. Preferential Right	Payment of equity dividend is made after the payment of preference dividend.	Payment of preference dividend is made before the payment of equity dividend. They have priority over equity shares.
2. Repayment of Capital at Winding-up	Repayment of equity share capital is made after the repayment of prtf&n share capital.	Repayment of preference share capital is made before the repayment of equity share capital. They have priority over the refund of capital.
3. Rate of Dividend	The rate of equity dividend may vary from year to year depending upon the profits of the company.	The rate of preference dividend is fixed by the terms of the issue.
4. Arrears of Dividend	In the case of equity shares, arrears of dividend cannot accumulate. It fluctuates with profit.	In the case of preference shares. arrears of dividend may accumulate if such shares are cumulative.
5. Convertibility	Equity shares cannot be convertible.	Preference shares may be convertible into equity shares.
6. Redeemability	Equity shares are not redeemable during the lifetime of the company	Preference shares are redeemable during the lifetime of the company or at a specific time mentioned.
7. Premium on Redemption	They cannot carry a right to receive a premium on redemption.	They may carry a right to receive a premium on redemption.
8. Voting Rights	Equity shareholders enjoy voting rights ¡n the general meetings of shareholders. These shareholders have full voting rights.	Preference shareholders do not have any voting rights except all the meetings of preference shareholders. Voting rights of preference shareholders are restricted.
9. Degree of Risk	Sink and swim with the company.	Relatively less risk.
10. Appeal to investors	Attractive to bold and adventurous investors.	Appeal to conservative and orthodox investors.

Question 5.
Differentiate between Shares .and Debentures.
Answer:
Difference between Share and Debentures:

Point of Distinction	Shares	Debentures
1. Nature	Part of capital. owned funds of the company.	Debt or loan, borrowed funds and is an acknowledgment of debt.
2. Status of Holders	Owners of the company.	Creditors of the company.
3. Right to return	Dividends cannot be claimed as a matter of rights.	Interest can be claimed as a matter of right.
4. Security	No charge on assets or mortgage as security.	Generally a charge on assets as security to mortgage.
5. Voting rights	Full voting rights	No voting rights and say in the management.
6. Redemption	Not repayable during the lifetime of a company (except redeemable preference shares)	Generally repayable after a specified period.
7. Order of repayment	After all claims of creditors are settled	Prior to all types of shareholders.
8. Frequency of return	Uncertain and fluctuating depending on profits.	Absolutely certain or fixed irrespective of profits.
9. Risk to holders	The complete risk is borne by holders.	Minimum risk in case of secured debentures.
10. Charge in accounts	Dividend on shares ¡s a charge against profit and loss appropriation account	Interest on debentures is a charge against profit and loss account.

Question 6.
Explain the term Lease-financing. Give in brief its merits and limitations.
Answer:
Lease-financing:
A lease is a contractual agreement in which one party i.e. the owner of an asset grants the other party the right to use the assist in return for a specific period for payment. The owner of the assets is called the lessor while the other party that uses the assets is known as the lessee.

Lease financing provides an important means of modernization and diversification to the firm. Such type of financing is more prevalent in the acquisition of assets like computers and electronic equipment which becomes obsolete quicker because of fast-changing technological developments.

Following are the merits of lease-financing:
(a) It enables the lessee to acquire the asset with a lower investment.
(b) It provides finance without diluting the ownership or control of the business.
(c) The lease agreement does not affect the debt raising capacity of an enterprise.
(d) The risk of obsolescence is born by the lesser. This allows greater flexibility to the lessee to replace the asset.

Limitations:
The limitations of lease-financing are as under –

1. A lease arrangement may impose restrictions to allow the lessee to make any alteration or modification in the asset.
2. It may result in higher payout obligation in case the equipment is not found useful and the lessee opts for premature termination of the lease agreement.
3. The lessee never becomes the owner of the assets. It depriver him of the residual value of the assets.

Question 7.
Classify the sources of funds on the basis of ownership.
Answer:
On the basis of ownership the sources of fund are divided into two types:

1. Owner’s capital,
2. Borrowed capital.

Owner’s capital or Owner’s fund: The capital of the owner of the business falls under this category.

It is got from three resources:

1. Equity shares,
2. Preference shares and
3. Retained earnings.

Features:

1. Owner funds are treated as risk capital i.e., provision of loss, low profits, etc.
2. Owned funds are the permanent source of capital.
3. Owners fund different front management.
4. There is no need for security for the owner’s fund.

Advantages:

1. Owner’s capital forms the basis for raising loans.
2. It is the permanent source of capital.
3. This management is separate from ownership. Therefore professional managers can be employed to work efficiently.
4. Capital forms the basis on which owner acquire their rights to control the activities of the company.
5. In this type of capital, no security is required, the assets of the company are free to be used for raising loans.

Borrowed funds: Funds obtained from the parties, separate from the owner of an enterprise are known as borrowed funds:

1. Borrowed funds can be raised for a specific period.
2. There must be security for raising funds through debentures.
3. A fixed charge is made on assets due to borrowing funds.
4. Borrowed funds are payable after the specific period.
5. There is much control on the company due to the non-interference of creditors.

Advantages:

1. It does not affect the owner’s control over management.
2. Interest is treated as an expense. Therefore the amount of tax liability is reduced.
3. It provides flexibility to the capital structure. Finance may be raised when it is required and repaid when it is not required.

Limitations:

1. Payment of interest and repayment of the loan cannot be avoided even if there is no profit.
2. It requires securities to be offered against the loans.

Question 8.
What is Trade Credit? State its merits and limitations?
Answer:
Trade credit is the credit extended by one trader to another for the purchase of goods and services. It is used as short term financing. It is granted to those parties which have a sound financing position and goodwill. The volume and period of the credit depending upon various factors such as goodwill of the purchasing firm, the financial position of the seller, volume of purchases, past record of payment, and degree of competition in the market.

Merits:
The following are the merits of trade credit:

1. It is a convenient and regular source of funds.
2. It may be readily available in case the creditworthiness of the customers is known to the seller.
3. It does not create any charge on the assets of the firm.
4. It promotes the sales of an organization.
5. It helps in increasing the stock in order to meet expected demand in the sales volume in near future.

Limitations:

1. Easy availability may induce a firm to “indulge in overtrading.
2. Only a limited amount of funds can be generated.
3. It is a costly source of funds as compared to others.

Question 9.
Explain Commercial Banks and Financial Institutions as a source of business finance.
Answer:
Commercial Banks:
Commercial Banks are a very important source of finance. They provide funds for different purposes and for different periods. They provide loans to all firms and finance them by the way of cash credits, overdraft, purchase/selling, and the issue of letters of credit. The Interest rate depends upon the type of loan and the interest rate of an economy. The loan is repaid either in a lump sum or in installments. The borrower is required to provide some security or create a change on the assets of the firm before a loan is sanctioned by a commercial bank.

Merits:

1. They provide timely finance as and when needed by the business.
2. Information supplied to the bank by the firm is kept confidential, so the secrecy of the firm can be maintained.
3. Not many formalities required like an issue of prospectus and underwriting for raising loans from banks.
4. The loan from a bank is a flexible source of finance, a loan is taken as and when required and repaid in advance when funds are not needed.

Limitations:

1. Funds available from the bank generally for a short and medium period.
2. The procedure of obtaining funds from banks is slightly difficult because the bank makes a detailed investigation of the company affairs and may ask for the security of assets and personal securities.
3. In some cases, difficult terms and conditions are imposed by the bank for the grant of loan which affects the smooth running of the business.

Financial institutions: For the development of industry’s’ and business center and state governments established various financial institutions to provide finance and assistance, They provide both owned capital and loan capital for the long and medium-term. In addition to providing financial assistance, these institutions also conduct market surveys and provide technical assistance and managerial services to people who run the enterprises.

This source of financing is considered suitable when large funds for a larger duration are required for the expansion, reorganization, and modernization of an enterprise.

Merits:

1. They provide long-term finance.
2. They also provide financial, managerial, and technical advice and consultancy to business enterprises.
3. Raising a loan from this institution increases the goodwill of the borrowing company in the capital market.
4. As repayment of the loan can be made in easy installments, it does not prove to be much of a burden on the business.
5. The funds are made available even during periods of depressions.

Limitations:

1. Raising loans from a financial institution is time-consuming and expensive because they follow too many formalities.
2. Certain restrictions are imposed on the power of the borrowing company.

They may have their nominees in the Board of Directors of the borrowing company thereby restricting the powers of the company.

Question 10.
“Finance is the lifeblood of business.” Is this statement true? Explain.
Answer:
Yes, it is true that ‘Finance is the lifeblood of the business. No business firm can carry on its operation smoothly and successfully without the availability of the right amount of funds at the right cost and at the right time. In the absence of finance, the production and selling of goods and services are not possible.

In business, finance is required for:

• establishing an enterprise
• purchase of fixed and current assets
• expansion, growth, and modernization of business.

In modem business, the significance of business finance has increased due to an increase in the scale of business, use of capital-intensive techniques, shortage of finance, and increase in competition.

NCERT Most important question:

Question 1.
Explain briefly the meaning of promotion of a Company9.
Answer:
Meaning of Promotion: The term promotion is used as the sum total of activities by which a business enterprise is brought into existence. It is a term of business, not of law. Promotion consists of the. business operations by which a company is established.

It is the process of planning and organising the finances and other resources of a business enterprise in the corporate form. According to C.W. Gerstenberg, “Promotion is the discovery of business opportunities and the subsequent organisation of funds, property and management ability into business concern for the purpose of making profit therefrom.”

Promotion is the process of the discovery of a business idea, its investigation and assembling of necessary resources to set-up a business as a profitable concern. The person or group of persons who perform the work of promotion and form a company as a going concern are known as a promoter. A promoter is an entrepreneur or businessman who gives birth to a business concern. A promoter may be an individual, a firm or a company.

According to S. Francis Palmer, “Promoter means a person who originates the scheme of promotion of the company, has the Memorandum and Articles prepared, executed and registered and finds the first directors, settles the terms of preliminary contracts and prospectus (if any) and makes arrangements for advertising and circulating the prospectus and the capital.”

Thus a promoter is a person or a group of persons who conceive the idea of the formation of a company, and takes necessary steps for its incorporation, raising of capital and making it a going concern. In order to perform the task of promotion successfully, a promoter must have several essential qualities. Fertile imagination, sound judgement, initiative, resourcefulness and organising ability are the main qualities of a successful promoter.

Promotion may be done for several objectives, e.g. to start a new business, to expand an existing business or to take over an existing business. Out of this starting, an altogether new business is the most difficult task.

Question 2.
Draw up the various stages of formation of the company.
Answer:

Question 3.
Explain briefly the various types of promoters.
Answer:
Types of Promoters: Promoters can be of the following kinds:
1. Entrepreneur Promoters: An entrepreneur conceives the idea of a new business and performs all the work for establishing it as a going concern. He continues to manage and control the business promoted by him. Small-scale enterprises, such as sole proprietorships and partnerships are promoted by entrepreneurs. He undertakes risk and takes initiative in promoting the company.

2. Professional Promoters: These promoters are specialists in promoting new business ventures. Large-scale enterprises are generally promoted by experts. These experts possess the necessary skills and knowledge in the promotion. They promote a business as a going concern and then sell the proposition or hand-over its management and control others.

These promoters are interested only in looking out tor business reality. He needs to be action-oriented. He will assemble resources, prepare necessary document give a name to the company opportunities and converting them into business units in return for handsome remuneration. There are very few professional promoters in India. They initiate new enterprises and find out the persons who can supply capital.

3. Occasional Promoters: This type of promoters promote a business once a while rather than on a regular basis. Promotion is not their main job and after promoting a company they go back to their original occupation. For example, an engineer or a technical expert may promote a business to commercially exploit a patent or invention discovered by him. They manage the company’s affairs even after incorporation of the company.

4. Financial Promoters: These promoters float new companies during favourable conditions in the securities market. Banks and other financial institutions also perform the work of promotion owing to their experience in the financial sector. Investment bankers become active in the field of promotion when the securities market is able to absorb new issues of equity shares. In India, the Industrial Development Bank of India and other financial institutions carry out the work of promoting industrial concerns.

5. Government: Nowadays, the government has become the biggest promoter. For example, the Government of India has established several basic, strategic and defence industries to speed up the process of economic development in the country. It has promoted large-scale enterprises in iron and steel, coal, shipping, fertilisers, electronics, engineering, insurance, tourism, hotels, etc.

Question 4.
A promoter has various qualities. Explain in brief.
Answer:
Qualities of a Promoter: A promoter should possess the following qualities.

1. Vision: A promoter requires a sound imagination and a clear but realistic view of the future. He analysis the prospects of a company and brings together the men, materials and machinery.
2. Alert mind: The promoter should be alert enough to notice business opportunities that can be used to advantage. An invention, a patent, a natural resource, an unsatisfied or poorly satisfied need are examples of such opportunities.
3. Resourcefulness: A promoter should be able to mobilise financial, human and physical resources so a
4. Risk-taking ability: The promoter should be able to bear the calculated risks of the business. Sometimes, an idea may be good but technically not possible to execute.
5. Tact: A promoter needs to be tactful so as to persuade people to invest money in the new venture.
6. Patience: Considerable patience is necessary to wait till the business idea takes a practical shape. Sometimes, it so happens that a project is technically feasible and viable, but chances of it being profitable are very little, the idea may have to be adopted later by investigating into details which require patience.
7. Analytical ability- The promoter should be able to carefully examine each idea and opportunity in terms of costs and benefits.

Question 5.
Define ‘Memorandum of Association’ and ‘Articles of Association’ as these are public documents.
Answer:
Memorandum of Association: The Memorandum of Association is the principal or most important document of a company. According to Lord Macmillan, “The Memorandum of Association sets out the constitution of the company. It is, so to speak, the charter of the company and provides the foundation on which the structure of the company is built. It enables persons, who deal with the company, to know its permitted range of activities.” In the words of Lord Cains, “the Memorandum of Association of a company is its charter and defines the limitations of the power of the company established under the Act.

The Memorandum contains the fundamental conditions upon which alone the company is allowed to be incorporated.” It also lays down the scope of operations of the company beyond which it cannot operate. The purpose of the Memorandum of Association is to enable the shareholders, creditors and others who deal with the company to know its permitted range of activities. In fact, it can be considered as the .foundation on which the structure of a company is based. Its primary importance lies in the fact that a company cannot undertake such operations which are not mentioned in its memorandum.

Great care should be taken in preparing the Memorandum of Association because a company cannot go beyond the limits laid down in the Memorandum.

The Memorandum of Association must be
(a) printed,
(b) divided into suitable paragraphs numbered in sequence, and
(c) signed by the required number of persons in the presence of at least one witness.

The Memorandum must be published in sufficient numbers because it is a public document and a copy has to be given on demand and at a nominal charge. The facsimile and common seal of the company should be filed on the Memorandum. The Companies Act contains different forms of Memorandum (in Schedule 1), one each for companies limited by shares, companies limited by guarantee without shares capital, and unlimited company.

In brief Lord Justice Browen, “a Memorandum of Association is a fundamental document of a company which is also known as the charter of the company. It lays down the object and scope of activities and limitations on the power of a company beyond which the company cannot go. It is a document which contains all conditions upon which a company is allowed to be incorporated.

Articles of Association: Articles of Association are the bylaws of a company. They contain rules and regulations for the management of the internal affairs of a company. They define the mode and manner in which the company’s business is to be carried on. Articles of Association are public document. Outsiders dealing with the company are supposed to have read the Memorandum and Articles of the company. They are entitled to believe that the company conduct its business according to the rules and regulations. This is known as the Doctrine of Indoor Management.

A private company, a company limited by guarantee and an unlimited company, must prepare and file their own Articles of Association. But a public company limited by shares may adopt Table A in the First Schedule of the Companies Act, in case it does not want to prepare and file its own Articles of Association. While preparing the Articles great care should be exercised.

Anything contained in the Articles which is against the Memorandum of Association or against The Companies Act shall be null and void. The Articles of Association should be printed, properly divided into paragraphs, consecutively numbered and signed by the signatories to the Memorandum in the presence of at least one witness. The Articles of Association are subordinate to the Memorandum of Association.

Question 6.
What is ‘Statement in lieu of Prospectus*?
Answer:
Statement in lieu of Prospectus: A public company having a share capital may sometimes decide not to approach the public for securing the necessary capital because it may be confident of obtaining the required capital privately. In such a case, it will have to file a ‘Statement in lieu of Prospectus’ with the Registrar. A ‘Statement in lieu of Prospectus’ is drafted in accordance with the particulars set out in “Schedule III” of the Companies Act. It .contains information very much similar to a prospectus:

It must be duly signed by all the directors and a copy thereof must be filed with the Registrar at least three days before the allotment of the shares. However, a private company is a riot required to either file “Prospectus” or a “Statement in the lie of Prospectus” with the Registrar. ‘Statement in lieu of Prospectus’ must be dated and signed by each director. It should not contain any untrue or misleading statement. Provisions regarding the penalty for issuing a misleading prospectus are also applicable to untrue details given in a statement in lieu of prospectus. A private company is not required to file either a prospectus or a statement in lieu of prospectus as it is not permitted to raise funds.

NCERT Most important question:

Question 1.
Explain in brief the concept of social responsibility of business.
Answer:
Concept of Social Responsibility:
Meaning and Rationale: Business in today’s world is recognized and accepted as a social and economic activity of society. The business is carried on within the societal norms in order to satisfy the needs of the society. All the factors of production i.e. Men, machines, materials, money, and equipment are supplied by the society to the business as such business owes its existence to the society.

The society originates, sustains, and manages to conduct its affairs in the. the interest of society. In other words, social responsibility is the obligation of the business towards different groups of society; in addition to its profit earning.

• “Social responsibility is the personal obligation of everyone, as he acts for his owner’s interests to assure that right and legitimate interests of all others do not impinge.”-Knootz O’Donnel
• “In the real sense, the assumption of social responsibilities implies recognition and understanding of the aspiration of society and determination to contribute to its achievement”-George A. Steiner

The business has its obligation to pay a reasonable return to its owners, to pay interest at competitive rates to investors, to pay reasonable remuneration to employees, supply goods to customers at reasonable rates, and to conduct the affairs of the business in accordance with social commitment and values.

Question 2.
“Customers are the foundation of the business.” Explain the statement in the light of the social consciousness of consumers.
Answer:
Peter F. Drucker, the management Guru, rightly states that the customers are the foundation stone of any business. The ultimate objective of any business to gain maximum profit can only be achieved by providing the right goods and services to consumers and try to provide maximum satisfaction to consumers. In the opinion of Butler, “The customers hold a topmost place in the organization hierarchy.

It is, therefore, necessary that businesses should avoid adulteration, substandard product, defective measurement or weights, deceptive and advertisements, and omission from services and courtesy. Business premises is for customers not the customers for the business.

The business has the following obligation towards customers:
1. Need-based production: Business should produce only those goods which satisfy the expectation and aspirations of the customers.

2. Supplying goods at a reasonable price: Every business aims at producing goods at the minimum cost. It should supply goods to customers at a reasonable price. The price of the commodity must be reasonable and competitive.

3. Appropriate distribution: The producers and manufacturers should make their goods and services at the appropriate places and times, so that customers may not face more difficulties in acquiring them. The increase in the number of middlemen will increase the price. The channels of distribution must be sufficient to maintain the smooth supply of goods to customers. The importance of customers in business must be recognized and accepted by every firm.

Question 3.
Discuss the responsibilities of business towards employees or workers.
Answer:
Workers are the major force in any organization. They do not only work as a factor of production but also helps in working the other factors. It is rightly said that the owner of a business simply invests capital in the business, but employees/workers invested their entire life for the benefit of the organization. Therefore, it is the prime duty of the business to fulfill its humane, social, and business obligations.

The responsibility of business towards employees or workers may be discussed as under:
1. Fair wages: it is the social, moral humane, and business responsibility of every firm to pay a reasonable amount of wages to employees in order to live a respectable life in society.

2. Security of the job: Workers must feel part and parcel of the organization and treat themselves as a permanent assist in the business. He should contribute his best without fear of being removed and retrenched.

3. Creating a congenial atmosphere of work- Working conditions must be congenial to work. The place of work should be clean, properly ventilated, and free from dirt and suffocation. There should be proper arrangement of safety measures to avoid accidents.

4. Scientific selection and training of workers: The selection and appointment of workers should be based on testing. Employees should be selected strictly as per the requirements of the works. In other words, the right workers should be appointed for the right jobs.

Late Prime Minister Pandit Jawahar Lai Nehru rightly conclude that
“In the present economic and industrial structure, the relationship between workers and customers should not be that of owner and workers but workers should be treated as partner and colleague and in this vim; there can be the peaceful solution of all the economic problems.”

Question 4.
Explain the concept of ‘Human Rights’. Also mention cases for Human Rights.
Answer:
Concept of Human Rights: Human rights provide equality to individuals in their interests. Human rights basically meant to provide a basis for justifying one’s action and provide protection and assistance. Human rights lay stress on the concept of humanity. All big business organizations should follow and promote human rights.

Cases for Human Rights- Human rights have received high priority in our society’. In order to get these rights, many movements have also appeared.

The following statements may be mentioned in favor of human rights in general, in society’ and in particular in business.
1. Protection against Human Injustice- Businessmen generally do not protect government patterns and establish their own social and economic parameters. Human rights come to light when people think that injustice being perpetuated.

2. Provides Benchmarks for Law Land Policies: After independence, certain basic rights became natural which do not act under any law or policy. These rights take precedence over the particular laws and standards created by society.

3. Respecting the Human Values: Some human rights are taken as basic rights. These rights are the overriding significance of human rights over others, human rights, and legal rights and provide entitlements beyond legal jurisdiction should be respected by others.

There is a great difference between human and legal rights. One may have a legal right to do something inhumane but for doing any work of humanity there is no need to have legal rights. Legal rights are derived from the constitution and policies while human rights derived independently. Human rights are based on human norms. Entitlement of human rights can derive from a system of human standards independently of any particular legal system. These rights prohibit todo something inhumane.

United Nation declares the following as Human Rights:

• The right to work, free choice of employment, good working conditions, right of protection against unemployment.
• Right of just or favorable remuneration.
• Right to form and join trade unions.
• Reasonable limitation of working hours and periodic holidays with pay.

Question 5.
Outline the major Environmental Pollution Control Activities,
Answer:
Major Environmental Pollution Control Activities:

1. National conservation strategy in 1992, policy statement for environment and development, Policy statement for abatement of pollution 1992, National Forest Policy 1988, and in 1986. Environment (Protection) Act was initiated for pollution control.
2. Standards related to air, water, and noise levels were formulated by a multi-disciplinary group keeping in view the international standards, technologies, and impact on health and the environment.
3. Action plans and identification of 17 categories of major polluting industries.
4. Identification of 24 major polluted areas for pollution control.
5. Factories were asked to use coal wherein % of smoke will not be more than 34%.
6. Action plans for 141 polluted rivers started.
7. In order to reduce the pollution from automobiles, cleaner fuels, low sulfur diesel, and compressed natural gas (CNG) should be used at the manufacturing stage.
8. Starting of clean technologies for big industries.
9. FortheclustersofSSI units ‘Common Effluent Plants’ was set up.
10. The echo mark scheme started to increase the production/consumption of Environment-friendly products.
11. A zoning atlas was prepared to get environmental informational district level.
12. Environmental epidemiological studies were initiated in seven critically polluted areas to study the impact of the environment on health.
13. Financial assistance to initiate pollution control environments and to shift industries in the outer places.
14. Environment Pollution (Prevention & control) authority was established.
15. Prohibition of smoking in public places and use of polythene bags.

Question 6.
What are the various factors influencing business ethics?
Answer:
Factors Influencing Business Ethics: The main determinants of business ethics are as follows:
1. Social values- Social forces and pressures exercise considerable influence on business ethics. Often, different groups in society compel businessmen to discontinue unethical practices. Morality, behavior, beliefs emerge from social values, social forces exercise influence on business to observe ethics in business.

2. Legislation: Laws are generally passed to keep a check on unethical practices. They are their use of social pressures. When society considers a practice unethical, it may exercise its influence to get that practice declared illegal. For example, the Monopolies and Restrictive Trade Practices Act has made monopolistic trade practices illegal in India. Prevention of Food Adulteration Act 1976, Drugs and Cosmetics Act 1946, Prevention of Black-marketing and Maintenance of Supply of Essential Commodities Act 1980 has to enact to keep a check on malpractices of business.

3. Government rules and regulations: Government regulations provide guidelines for acceptable practices. For example, the government has made it compulsory for tobacco companies to give the statutory warning “smoking is injurious to health” in the advertisements for cigarettes.

4. Industry norms: In some industries and trades, specific codes of conduct have been laid down. In addition, many organizations have laid down guidelines for regulating the behavior of their employees. Most industries have an ethical climate that governs the code of conduct of the employees. An individual working in the enterprises to observe the code of conduct of the enterprise, and norms established in the industry.

5. Personal Yahies-The personal beliefs of the individuals working in an organization also influence business ethics. However, sometimes there is a conflict between personal moral values and company goals. Generally, employees look to their superiors and tend to adopt their values and actions. The behavior of competitors and associates also influences business ethics. An honest businessman must-keep their personal interest subordinate to die interest of society.

6. Professionafisation: Professional managers normally tend to have higher ethical standards than family managers. Therefore, the growing professionalization of management has exercised a healthy influence on ethics in business. These days professionalism of management has been generating more ethics in the business.

Question 7.
Write short notes on CSR?
Answer:
It is the responsibility of every form of business enterprise to act in a socially desirable manner. But the concept of CSR is corporate social responsibility used particularly with reference to a company. It may be defined as achieving commercial success in ways that honor ethical values and respect people, communities, and the natural environment. It means addressing the legal, ethical, commercial, and other expectations that society has from corporate who should take decisions and actions that fairly balance the claims of stake-holders. CSR is viewed as a comprehensive set of policies, practices, and programs that are integrated into business operations, supply claims, and decision-making processes throughout the company.

Question 8.
List the environmental problems that cause damage to the natural environment?
Answer:
The United Nations has identified eight problems that cause damage to the natural environment.

These are:

1. Ozone depletion
2. Global warning
3. Solid and hazardous wastes
4. Water pollution
5. Freshwater quality and quantity
6. Deforestation
7. Land degradation
8. Danger to biological diversity.

Question 9.
Define Corporate Governance?
Answer:
It is originated intheUnitedKingdomforthepurposeofimproved accountable to directors to shareholders, with emphasis on more transparent auditing and increased responsibilities of independent directors and division of roles of chairman and managing directors for safeguarding the interest of the shareholders.

Question 10.
What are the main ground rules of ethics?
Answer:
The following are some rules which all human beings should follow in life.

1. Be trustworthy
2. Have respect for other
3. Own responsibility
4. Be fair in dealing
5. Be caring towards well being of others.
6. Prove to be a good citizen

Question 11.
Write the effects of pollution?
Answer:
Pollution: The injection of harmful substances into the environment is called pollution. It changes the physical, chemical, and biological characteristics of air, land, and water. Pollution harms human life and the life of other species. It also degrades living conditions while wasting or depleting raw material resources. It also damages our historical monuments. It causes risks to the environment, human health and damage to natural and man-made resources.

Question 12.
Give some examples of Business ethics.
Answer:

1. Giving enough dividends to the shareholder on their investment.
2. Making goods available of good quality and quantity at a reasonable price.
3. Making timely payments to the suppliers.
4. Having healthy competition with the competitors.
5. Observing the government laws and helping the government by paying taxes in time.
6. Making employment to the society.
7. Saving the environment from getting polluted.

Question 13.
“The concept of social responsibility is ultimately in the interest of business community itself.” Do you agree? Explain.
Answer:
“The concept of social responsibility is ultimately in the interest of the business community itself. I agree with this statement because business is an organ of society and it operates in a socio-economic environment. It can justify its existence by fulfilling its obligations to society. No doubt business is an economic institution and it cannot survive without economic performance. But economic results depend upon the goodwill and support of the society’. Business gains support only when it assumes its social responsibilities.

NCERT Most important question:

Question 1.
Define E-commerce and mention its opportunities in the modern business world.
Answer:
Meaning of Electronic Commerce (E-commerce): Internet commerce or E-commerce (electronic-commerce) is on-line electronic technology connected via the internet to assist and enhance a variety of business processes, functions, and systems. Using the Internet for commerce means no physical presence of parties is required.

Electronic commerce is electronic communication among enterprises, including customers, suppliers, business partners, govt, organizations, and financial institutions. It encompasses a broad range of activities like ordering, invoicing, transportation, delivery, and payment can be done electronically.

Definitions of E-commerce: “It is an electronic communication among enterprises, including customers, suppliers, business partners, government organizations and financial institutions. ”- Dr. Janardhan

Thus, we can understand “e-commerce is a general concept covering any business transaction executed electronically between parties such as companies to companies (business-to-business) companies and consumers (business-to-consumer), consumers and consumers, business and the public sector and between consumers and the public sector.

Therefore, we can say that electronic commerce is a generic name for a range of technologies that allows the transfer of business information using electronic means. This would, therefore, include technologies such as Electronic Data Interchange, Universal Product Certification or Article Numbering, geographical positioning System, etc. which allows the exchange of information reducing human intervention to a minimum.

Opportunities of E-commerce: The opportunities of electronic commerce are not just available to large corporations and government departments but many small to medium businesses are also discovering new cost-effective opportunities by using internet-related technology to help their business operations locally or internationally. It makes it possible to work round the clock and around the world. It offers business concerns more cost-efficient and time-efficient.

Moreover, e-commerce offers great opportunities for developing countries. It can help them to enter the prosperous global market place and hence serve to reduce the gap between rich and poor countries.

In today’s business world corporate applications of electronic commerce have focused on computer-to-computer interactions. The output of one computer program becomes the input to another. The system that is used to generate a printed purchase order and mail it to the supplier now sends the purchase order as an electronic data interchange message to a computer at the supplier’s facility. The order is automatically, electronically received, and input by the supplier’s own order processing software and does not have to be keyed in. Payments are similarly automatic with electronic funds transfers (EFT) replacing cheques. It makes no sense to spend money on paper and people when two computers can structure the transaction for a few amount.

E-commerce offers the following opportunities to suppliers and commensurate benefits to consumers:

• Global choice.
• Improved competitiveness or quality of services.
• Personalized products and services.
• Rapid response to needs.
• New products and services.

Question 2.
Give the meaning of E-business.
Answer:
Meaning of E-business: E-business (Electronic business) is the conduct of business on the internet. It involves not only buying and selling but also servicing customers and collaborating with business partners. E-business is the future of all business. It encompasses the use of technologies, processes, and management practices that enhance organizational competitiveness through the strategic use of electronic information.

It goes beyond e-commerce by integrating e-commerce tightly with business operations to improve performance, create value and enable new relationships between businessmen and customers. It involves strengthening relationships with customers and suppliers. It is beneficial to check the competition and useful for developing new product ideas and sources. It is more concerned with re-designing business processes.

Question 3.
What are the various uses on benefits of e-commerce?
Answer:
Uses of E-commerce:
1. Customers search: E-commerce helps in finding customers for the product or service by sending them informative e-mails for the product or service. These e-mails help customers to understand the product and decide as to whether it should be purchased or not. It makes use of a search engine to find an appropriate seller’s website.

2. Pre-sales inquiries: Customers can contact the company’s sales executives through the company web-site to have information about the product price, specification, etc. It may select the desired seller from the advertisement or a friend’s recommendations.

3. Information publishing and dissemination Company web¬site helps in providing the latest information about the price, discount, quality of the product, etc. Web-site can be accessed anywhere in the world.

4. Sales of product: Online sales of products can be made on the website. Customers can choose the product from the catalog of photographs and order online. Payment can be made through cheque, draft, or credit card.

5. Advertising product: E-commerce helps to advertise the product through e-mails, website, telemarketing, etc. Customers can be given the latest information on the e-mail or website.

6. Sales promotions: Sales can be increased by online trading on the internet also helps to provide better customer service by receiving their complaints on the e-mail.

7. Purchasing goods: Suppliers can be found on the internet for a particular product or service. Internet search engines like Google, Yahoo help in locating suppliers from all parts of the world.

8. Funds transfer: Internet banking has the facility of funds transfer from one bank to another. The customers are provided secured identity to carry out such transactions on the internet. Payment may be made through credit card or cheque online.

9. After-sale service: Customers can be provided efficient after-sales service by contacting them via the e-mail address. Customers can put the complaints through companies e-mails.

Question 4.
Explain the process of E-business or online transactions.
Answer:
Process of E-commerce Transactions:
1. The cardholder browses items the merchant has for sale: Traditionally, the buyer walks into a bookstore and browse items on the shelves. If he finds something that he likes, he puts it into his shopping cart.

With electronic shopping, the buyer uses his Internet browser to browse items. Arvind Cloth Mills, Surat has for sales on its web pages. If he finds a cloth that interests him, he can add it to his virtual shopping cart. Arvind Cloth Mills Website provides a mechanism for keeping track of the order state, thereby remembering which books the buyer decides to keep in his cart.

2. The cardholder decided which of the items to purchase: With electronic shopping, as well as with traditional shopping, the buyer can remove any or all of the clothing he has placed in his shopping cart. (This functionality is merchant-supplied and is not a part of SET.) He pays only for the ones that he has decided to purchase.

3. The cardholder is presented with an invoice containing the list of items and their price: Traditionally, the buyer takes his clothes to the cash register, and the clerk rings up his purchase and presents him with a total price.

With electronic shopping, the buyer makes his decision to pay via Arvind Cloth Mill’s Website by clicking on a “Pay Now” button or something similar. He is then presented with a sales order electronically, from the cloth mill’s server, or on his computer via his electronic shopping software.

4. The cardholder selects a means of payment: When standing at the checkout counter at the cloth mill, the buyer decides which of the credit cards in his wallet, he wishes to use for his purchase.

Similarly, the buyer may have multiple cards he can choose from to complete his SET transaction.

5. The cardholder gives the merchant order confirmation along with the means of payment: Traditionally, this is as easy as the buyer handing the clerk a credit card.

With SET, the order and payment instructions are digitally signed by the buyer and are then sent to the Arvind Cloth Mill, Surat.

6. The merchant requests authorization for the purchase: With both electronic and traditional shopping, the cloth mill sends an authorization request to its acquire via its payment gateway. The acquire sends this information for processing to the buyer’s issue.

The issue returns with an authorization response. The response includes an indication of whether the authorization request has been approved. In turn, the acquirer responds to Arvind Cloth Mill, Surat with the outcome (acceptance or rejection) of the processing.

7. The merchant delivers goods to the cardholder: The cloth mill’s clerk, in the case of traditional acceptance, give the buyer his clothes and sends him on his way.

Question 5.
What are the various security problems that arise in E-commerce transactions?
Answer:
Security problems related to E-commerce: E-commerce has been facing certain problems that endanger the security and safety of business conditions.

The important problems are discussed below:
1. Hacking: It means unauthorized entry into a website. The hacker can destroy the data on the website which would cause a huge loss to the owner of the website. This would interrupt the business transactions carried out through the website. In several countries, the governments have set cybercrime cells to take action against the crimes committed by the hackers. In recent years, there has been an alarming increase in the cases of hacking.

2. Viruses: There are several viruses that can clean up all the information stored in the computer. The viruses can enter a system through e-mail or disc drive floppies or affected websites. Until the: virus is cleaned out, all operations come to a standstill. In such a situation, the business firm will suffer a loss of revenue. Viruses cause huge loss. of revenue and time to clear the disc drive floppies or websites.

3. Brand-hijacking: The Internet allows the creation of powerful brands in a very short period of time. But brand identity created through radio, T.V., and the press is very costly and time-consuming. The internet brand may overshadow the existing brands causing huge loss to their owners. For instance, Amazon became the leading bookseller brand within a period of about two years and it offered tough challenges to the established names such as Barnes and Noble. As a safeguard, each company should establish its brands in cyberspace without further delay.

4. Impersonation: Hackers may pretend to be customers themselves. They thus make use of stolen credit cards of real customers.

5. Fraudulent trading: A business enterprise operating a website may indulge in fraudulent practices. It may create a fake website, take away money from customers and not supply the product/service to the customer. It may not protect confidential information about customers. Parties to a transaction cannot deny their participation later on.

6. Improper registration of domain names: A dishonest person may register a domain name linked to the established brand name or trademark of another firm. For example, he may register vodafone.com. in his name to sell the domain name to the rightful owner at a price.

Question 6.
What is the meaning of the term ‘outsourcing’?
Answer:
Outsourcing (Introduction): In today’s eta, businesses are more focused on cost control measures as it is not easy to increase prices if a market share has to be retained or improved. Competitive advantage can be realized only when businesses become more efficient in their operations and reduce the cost of inefficiencies. In such a case specialization plays an important role.

During the 1990s, a new trend could be seen wherein the repetitive nature of work was being transferred to outside agencies so that efficiency in day-to-day operations can be achieved and businesses remain focussed on their core competencies. This phenomenon of hiring outside firms for services is known as outsourcing of services. It is a trend that is radically reshipping business. It relates to long term contracting out the non-core activities to third parties. With a view to benefitting from their experience, expertise, efficiency, and investment.

Meaning of Outsourcing Services: Outsourcing is the latest trend in today’s business world, going outside your own organization to obtain specialized services of various kinds. It is called Business Process Outsourcing (BPO), which essentially means getting tasks accomplished through an outside agency. Every outsourcing relationship involves processes and procedures. These are often standardized but it is important that there is some flexibility to ensure that they can evolve with the relationship.

Question 7.
Mention the various characteristics or features of outsourcing.
Answer:
1. Getting work done through outsiders: Outsourcing is the process of getting work done from specialist individuals outside the business. For example, an enterprise hires other agencies for repairing its machines rather than repair them by its staff.

2. Quality job: Through using outsourcing sources people get good quality. For example, a specialized faculty of a particular subject can teach the same subject better than general faculty.

3. Improvement in the number of products: Outsourcing helps to improve the number of products. A specialized courier agency or a transport company serves business better than its own drivers of trucks/ vehicles.

4. Expansion of business: The outsourcing process links growing businesses to a range of state-of-the-art services and, resources using outsourcing resources any business can expand as per its need. For example, using an advertising agency as a source of outsourcing a company/business can inform the features and quality of the product to people in an easy way.

5. Better standard of living- Outsourcing provided the best services to the people. In the modern world, every individual wants to avail of the maximum opportunity of his precious time. That’s why, he wants to use specialists for his different needs, which provides a better standard of living.

Question 8.
Mention in brief the various types of outsourcing.
Answer:
Type of outsourcing: Any non-core business process can be outsourced. Outsourcing of some of the popular services are given below:
1. Financial Services: Big companies require to obtain several financial services from outside or external sources. Every business firm requires some sort of financial service, e.g. payroll accounting services, merchant banking, underwriting, etc.

Manufacturing and commercial firms except for very large size find it more convenient and economical to depend upon outside financial agencies for the various financial services. For example, Reliance Industries may outsource financial services from HSBC Bank for issuing ADRs/GDRs in foreign capital markets.

2. Advertising: All big firms outsource the assignment of advertising their products and services to specialized handling. Business firms generally depend upon advertising agencies for designing, developing, and disseminating advertisements for their products and services. Some big advertisers such as Coca Cola, Pepsi, Hindustan Lever, and others have agreements with advertising agencies. Under the agreement, the advertising agency undertakes to provide all services concerning advertising in return for a fee. Outsourcing also helps to make use of the services of experts of ad-agency.

3. Courier Service: Big business firms have to send letters, parcels, etc. in large numbers. They make use of sendees offered by courier firms such as DTH, Overnight Express, and others. These courier firms collect all articles to be deposited from the offices of client firms and dispatch them to their destinations. Courier service is faster and more efficient, cheaper, quite reliable, and personalized service to clients.

4. Customer Support Service (CSS): ‘Customer is like a precious ornament which should not be stolen by anyone else.’ Several services are offered to customers to support the purchase and use of products. Companies are realizing that customer service is an excellent way to achieves competitive advantage in a highly competitive market.

Customers need home delivery service, repair, and maintenance of consumer durables, information, and counseling about alternate brands that best meet their needs. Business firms can concentrate on the sales function by outsourcing customer support services. For example, GE Capital and some other companies have set up call centers in India to provide support services to their customers in different countries.

Question 9.
Give a brief view of various advantages or need of outsourcing in today’s competitive world.
Answer:
Advantages/need of outsourcing: In today’s business world, outsourcing has become a buzz word to achieve specialization in services due to lack of time and unlimited requirements. Everyone wants more satisfaction in less time so that he uses specialists who create requirements of outsourcing of resources.

The principal needs of outsourcing are classified as follows:
1. Concentration on Core Competency: BPO provides an opportunity to the business to concentrate on core areas of its strength and competence. It can content rule on advertising, financial, courier, and customer services.

2. Enhancement of Business: As we know that every businessman wants more and more profit and personal development. For that, he should try to become distinguished from others by providing standard and specialized quality of a product. In order to achieve this objective, he should use outsourcing resources to make his dreams true.

3. Specialisation: Through outsourcing specialization in business operations can be achieved. This reduces cost and improves the quality of business operations.

4. Obtaining Better Quality of Product Services: The standard of living, of people, is improving day by day. Every individual wants to use the standard quality of goods and services. For this purpose they use outsourcing resources, so that standard quality of goods services could be produced.

5. Big Savings: Outsourcing agencies are competent enough in their services and perform the job at a lesser cost. It results in savings.

6. Avoidance of Labour Problems: Outsourcing requires a lesser number of persons to be employed by the business, so labor problems are also reduced.

7. Lowering the chances of Risk: Outsourcing to a service provider who is a specialist in the field adds to the success of the business firm and lowers the chances of risks.