Andhra Pradesh BIEAP AP Inter 2nd Year Commerce Study Material 2nd Lesson Domestic and International Trade Textbook Questions and Answers.
AP Inter 2nd Year Commerce Study Material 2nd Lesson Domestic and International Trade
Essay Answer Questions
What is trade? Explain different types of trade.
Trade means buying and selling goods or services between two persons or two business organizations or two countries. Trade is broadly classified into two types.
- Domestic trade
- Foreign or international trade.
1. Domestic trade :
Buying and selling of goods take place between the individuals of the same country. The buyer and seller live in the same country. It is also called as
Home trade or internal trade on the basis of the scale of operations, internal trade can be classified into two types. They are
i) Wholesale trade
ii) Retail trade.
i) Wholesale trade:
Buying and selling goods in relatively large quantities is called ‘wholesale trade’. A person who is involved in wholesale trade is called a wholesaler. A wholesaler buys goods in large quantities from the manufacturers and sells in relatively smaller quantities to the retailers. So, he is the connecting link between producers and the retailers.
ii) Retail trade :
Retailing means the sale of goods in small quantities to the consumers. A person engaged in retail trade is called a retailer. Retailers buys goods from wholesalers and sells them in relatively smaller quantities to the final consumers. Retailers established link between wholesalers and consumers.
2. Foreign trade or International trade :
The trade takes place between nations is international trade. So, goods or services exchanged between the traders of two nations is called foreign trade.
Foreign trade can be divided into three types. They are :
i) Import trade
ii) Export trade
iii) Entrepot trade.
i) Import trade :
The term import is derived from the conceptual meaning as to bring in the goods and services in the port of the country. When purchases are made from another country, goods are said to be imported from that country to the buyer’s country. For example, China has most modem technology for producing electronic products cheaply. So our country is importing those products.
ii) Export trade :
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of the country. When the goods are sold to a trader in another country, goods are said to be exported to that country by the seller country. For example, India is a major exporter of tea to another countries.
iii) Entrepot trade :
When goods are imported into a country, not for consumption in that country, but for exporting them to a third country, it is known as ‘Entrepot trade’. For example, India importing oil seeds from USA and exporting the same to Malaysia.
What is international trade? Various types of international trade? [A.P Mar. 17]
The trade that takes place between nations is international trade. The exchange of goods and services between the traders of two nations is international trade. International trade involves the exchange of not only goods but also currencies between nations. International trade is the process of transferring goods produced by one country for the mers in another country.
The international trade can be divided into three types. They are :
- Import trade
- Export trade
- Entrepot trade.
1) Import trade :
The term import is derived from the conceptual meaning as to bring in the goods and services into the port city of the country. When purchases are made from another country, goods are said to be imported from that country to the buyer’s country. For example, Japan has the most modem technology for producing the electronic products cheaply, so we import these products to our country.
2) Export trade :
The term export is derived from the conceptual meaning as to ship the goods and services out of the port of the country. When goods are sold to a trader in another country, goods are exported to that country by the seller’s country. For example, India is a major exporter of tea because of fertile land in Assam and Darjeeling, so we export tea products to another countries.
3) Entrepot trade :
When goods are imported into a country, not for consumption in that country, but for exporting them to a third country, it is known as ‘Entrepot trade’.
e.g.: India importing wheat from U.S aftd exporting the same to SriLanka.
What is international trade? Explain its importance.
The trade that takes place between the countries is called international trade. The exchange of goods and services between the traders of two countries is international trade. International trade involves not only the exchange of goods but also currencies between nations. International trade is the process of transferring goods produced in one country for the consumers pf another country. This is also called as Foreign trade or External trade. Due to globalisation development of means of communication and transport, the international trade has opened the way to huge imports and exports.
Importance of international trade:
Foreign trade becomes necessary to every country because no country is capable of producing everything for the consumption of its people and the development of its economy. Hence foreign trade is necessary on the following grounds.
- Different countries of the world have different natural resources. But some countries may not possess such mineral wealth. Therefore, one country has to depend on some other country for natural resources which results in need of foreign trade.
- Some countries are more suitably placed to produce some goods more economically due to availability of raw materials, labour, technical know-how etc. Than the other countries. In such case, foreign trade is needed to import goods from those countries where they can be produced cheaply instead of producing goods at higher cost.
- It is not possible for any country to produce all her needs. Production of different commodities require different climatic conditions. For example Cuba can produce sugar, Egypt can produce cotton etc. Foreign trade among these countries helps all these countries to get all their requirements.
- International trade has reduced inequalities and facilitated growth of economy in different countries.
- International trade lowers the prices of goods and services all over the world.
- International trade promotes increased international understanding, exchange of ideas and culture and world peace.
- In the era of globalisation, no economy in the world can remain cut off from the rest of the world. Therefore, every country has to depend upon some other country or other.
Distinguish between Home trade and Foreign trade.
Home trade :
A trade which is carried on within the country is known as Internal trade or Home trade or Domestic trade. The home trade takes place within the geographical boundaries of a nation.
Foreign trade :
A trade which is carried on with other countries is known as foreign trade or external trade or international trade. Foreign trade refers to buying and selling of goods and services between the countries.
The following are the differences between Home trade and Foreign trade.
|Home trade||Foreign trade|
|1. Trade||Trade carries with in country.||Trade carried with other countries.|
|2. Currency||It does not involve any exchange of currency.||It involves exchange of currencies.|
|3. Restrictions||It is not subjected any restrictions.||It is subject to many restrictions.|
|4. Risk||Transport cost and risks are less.||Transport cost and risks are more.|
|5. Nature||It consists of sales, transfer or exchange of goods within the country.||It involves import and export of goods.|
|6. Transport of goods||The movement of the goods depends on internal transport system.
e.g.: Roads, Railways.
|The movement of goods takes place usually by sea wherever possible.|
|7. Specialisation||It helps to derive benefits of specialisation within the country.||It helps all trading countries to derive the benefits of specialisation.|
|8. Volume of trade||The volume of trade depends upon the size of population, volume of production, development of banking facilities.||There are restrictions imposed on free entry of goods and duties and taxes are to be paid.|
|9. Suitable||It facilitates movement of goods from point of production to the areas where they are consumed.||It facilitates countries to specialise in the production of goods for which they have maximum advantage.|
Explain the limitations and problems of international trade.
The exchange of goods and services between the nations is called international trade. It has certain limitations and problems. The following are the limitations of international trade.
- Economic interdependence is gained from international trade. In case of war. or any other political dead lock, it creates a crisis.
- Industrialisation of developing countries may be adversely affected by unrestricted imports.
- Foreign trade leads to unhealthy competition among the countries, creating rivarly between them.
- The concept of comparative cost principle which lead to rigid specialisation in a few countries may create many difficulties.
- International trade may lead to lopsided or partial development at the cost of neglect of certain sectors of the economy.
Problems of Foreign trade :
1) Currency problems:
Payment between the countries create complications because every country has its own currency. To avoid losses in transactions the rate of exchange has to be carefully determined.
2) Legal problems:
Laws and customs regulations are affecting the import and export trade because every country has its own laws, customs regulations. These regulations stand in the way of smooth inflow and outflow of goods.
3) Credit problems :
The exporter has to take special steps to ascertain the credit worthiness of the buyer as there is no direct contact between the exporter and importer.
4) Greater risk :
In foreign trade goods are to be exported to long distances. So exporting the goods creates greater risk.
5) Time gap :
In foreign trade there is a wide gap between the time when the goods are despatched and the time when the goods are received and paid.
What is SEZ? Explain their objectives.
Special Economic Zones (SEZ) is a geographical region that has economic laws that are more liberal than a country’s economic laws. The main aim of the SEZ is to attract larger foreign investments. It is intended to make SEZs as engines for economic growth. The SEZ Act was passed by parliament in May 2005. A SEZ Act is specifically described as duty free enclave deemed to be a foreign territory for the purpose of trade operations. Objectives : The following are the objectives of special economic zones.
- To create employment opportunities.
- To generate additional economic activity.
- To promote export of goods and services.
- To develop infrastructural facilities.
- To promote investment from domestic and foreign sources.
- To import capital goods and raw materials duty free.
- To create foreign territory for the purpose of trade operations and tariffs.
- To allow 100% foreign direct investment for developing township.
- To exempt import duties and service tax.
- To get wide range of income tax benefits.
Explain the main advantages of SEZs. [A.P. Mar. 17]
Special economic zones is a new incarnation of export processing zone. The main aim of the special economic zone is to attract large foreign investments. Special economic zones acts like an engine for economic growth. The SEZ Act was passed by parliament in May 2005. Special economic zones aims to create employment opportunities and infrastructure facilities along with promotion of exports. Special economic zones aimed at importing capital goods and raw materials duty free.
The following major benefits can be attributed to Special Economic Zones (SEZ).
i) Employment generation :
Special Economic Zones considered to be highly effect tools for job creation.
ii) Economic development :
India can be made as tranformed economy if special economic zones are implemented properly, because special economic zones are engines for economic development.
iii) Growth of labour intensive manufacturing industry :
Establishment of special economic zones may lead to faster growth of labour intensive manufacturing and service industry in the country.
iv) Balanced regional development:
Special economic zones are beautifully crafted initiatives for achieving balanced regional development.
v) Capacity building :
Special economic zones are necessary for stronger capacity building.
vi) Export promotion :
Special economic zones induce dynamism in the export performance of a country by eliminating a) Distortions resulting from tariffs and other trade barriers, b) The corporate tax system and excessive bureaucracy.
Describe the criticism labeled against SEZs.
The following are the disadvantages of SEZ.
1) Special economic zones are criticised on many grounds. The first major criticism against special economic zone is forcible acquisition of agricultural land. This displaces many people from their traditional livelihood and employment sources such as farming, fishing etc. SEZs are encouraging real estate speculation. Small and marginal farmers, weaving and livestock rearing communities are away from their professions due to SEZs.
2) The special economic zones are not only dispossessing people from resources but also from democracy and governance. There has been a criticism regarding the governance model of special economic zones and their accountability. The problem of special economic zone is that there would be no democratic local governance institutions.
3) Special economic zones are also criticised for payment of meager and inadequate compensation and rehabilitation measures to the displaced. There are several environmental and health problems in the establishment of special economic zones. The SEZ Act is completely on environmental concerns.
4) Special economic zones are to be established in backward areas for bringing balanced regional development. But it has not happened. Majority of the units are located nearer to larger cities.
What are the incentives provided in the APSEZs?
Andhra Pradesh Special Economic Zone (APSEZ), a multi-product SEZ is designated as duty free enclave and treated as foreign territory for trade operations, duties and tariff. It serves as a global gateway for industrial growth and offers world class infrastructure and support services, it also offers attractive financial and tax incentives and procedural ease for facilitating foreign direct investment.
The Government of Andhra Pradesh is encouraging new entrepreneurs by offering various following incentives.
- Exemption from duties and excise.
- 50% of new capital i.e. invested in last 5 years.
- Avial international funds and interest rates.
- Reimbursement of duty paid on fumance oil, procured from domestic companies to SEZ units as per the rate of drawback notified by the Directorate General of Foreign Trade.
- Commodity hedging by SEZ units are permitted.
- FU11 freedom for subcontracting abroad.
- Job work on behalf of domestic exporters for direct export is allowed.
- In house customs clearance.
- 100% F.D.I
- Benefits from A.R Industrial Policy 2010- 2015.
- Stamp duty waiver.
- Vat, Sales tax, Octroil etc. Exemptions.
- Electricity subsidy.
- Single window clearance system at state level.
- Lowest industrial power tariff amongst the industrially progressed states in the
Short Answer Questions
Wholesale trade means buying and selling the goods in relatively large quantities or in bulk and the traders who engaged in the wholesale trade are called wholesalers. A wholesaler buys goods in large quantities from manufacturers and sells them in small lots to retailers or industrial users. A wholesaler is the first intermediary and serves as a link between producers and retailers.
Who is retailer?
Trader who is engaged in retail trade is called retailer. A retailer is the last link in the chain of distribution of goods. He is an intermediary between the wholesaler and consumers. He purchases goods from wholesaler and sells in very small quantities to ultimate consumers. His activities are generally confined to the locality in which his shop is located. Big departmental stores, super bazar, hawkers and other small shopkeepers are examples of retailers.
What is meant by internal trade?
A trade which takes place within the country is known as internal or domestic trade.
Buying and selling of goods takes place within the boundaries of the same country. Trade goods are carried from one place to another place through railways and roadways. Payment for goods and services is made in the currency of the home country. There is wide chance of the goods available and it involves transaction between producers, middlemen and consumers.
What is import trade?
The term import is derived from the conceptual meaning as to bring in the goods and services into the port of the country. When purchases are made from another country, goods are said to be imported from that country to the buyer’s country.
For example :
Chaina has the most modem technology for producing electronic products cheaply and India is importing these products.
What is meant by SEZ?
Special Economic Zones (SEZ) is a geographical region that has the economic laws that are more liberal than country’s economic laws. The main aim of SEZ is to attract large foreign investments. It is intended to make SEZ as engines for economic growth. The SEZ Act was passed by the Parliament in May 2005. A SEZ is specifically described as duty free enclave deemed to be a foreign territory for the purpose of trade operations.