Students must practice these AP Inter 2nd Year Commerce Important Questions 2nd Lesson Domestic and International Trade to boost their exam preparation.
AP Inter 2nd Year Commerce Important Questions 2nd Lesson Domestic and International Trade
Long Answer Questions
Question 1.
What is Trade? Explain different types of Trade. [Mar. ’18 (AP)]
Answer:
Trade means buying and selling of goods or services between two persons or two business organizations or two countries. It is concerned with the exchange of goods from the manufacturer (producer) to the consumer.
Trade is broadly classified into two types. They are
- Domestic Trade and
- International Trade.
1. Domestic Trade: A trade which takes place within the country is called Domestic Trade. It is also called “Home Trade” or “Internal Trade” or “National Trade”. It takes place within the geographical boundaries of a nation.
Domestic Trade is further subdivided into
- Wholesaler and
- Retailer.
a) Wholesaler: The trader who is engaged in wholesale trade is called wholesaler. Wholesale trade means buying and selling goods in large quantities or in bulk. A wholesaler buys goods in bulk directly from manufacturers and sells them in small lots to retailers or industrial users.
b) Retailer: The trader who purchases goods from wholesaler and sells in very small quantities to consumers 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.
2. International Trade: The trade that takes place between nations is called “International Trade”. It is also called “Foreign Trade” or “External Trade”. It involves the exchange of goods or services between the traders of two nations. International trade is the process of transferring goods produced in one country to the consumers in another country.
International trade can be divided into 3 types. They are
- Import Trade
- Export Trade
- Entrepot Trade.
a) Import Trade: When a country buys or purchases goods from another country, it is called “Import Trade”. The needed countries import goods from those countries where they can be produced cheaply instead of producing goods at higher cost.
For example:
- India imports electronic products from China because China has the most modern technology for producing electronic products cheaply.
- India buys petrol from Iran country.
b) Export Trade: When a country sells goods to another country, it is called “Export Trade”.
For example:
- India is a major exporter of diamonds to other countries.
- India exports tea to the United Kingdom.
c) Entrepot Trade [May 2022]: 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”. This type of trade is also known as “Re-export Trade”.
For example:
- India importing oil seeds from America and exporting the same to Malaysia.
- India importing oil from Iraq and exporting the same to Nepal.
Question 2.
What is International Trade? Explain various types of International Trade. [Mar. 2020,’19,’17 (AP)]
Answer:
International Trade: The trade takes that place between nations is called “International Trade”. It is also called “Foreign Trade” or “External Trade”. It involves the exchange of goods or services between the traders of two nations. International trade is the process of transferring goods produced in one country to the consumers in another country.
Types: International trade can be divided into 3 types. They are
- Import Trade
- Export Trade
- Entrepot Trade.
a) Import Trade: When a country buys or purchases goods from another country, it is called “Import Trade”. The needed countries import goods from those countries where products are available at cheap rate. The term import is derived from the conceptual measuring as to bring in the goods and services into the port of the country.
For example:
- India imports electronic products from China because China has the most modern technology for producing electronic products cheaply.
- India buys petrol from Iran country.
b) Export Trade: When a country sells goods to another country, it is called “Export Trade”. The term export is derived from the conceptual meaning as to ship the goods and services out of the port of a country. When goods are sold to a trader in another country, goods are said to be exported to that country by the seller’s country.
For example:
- India is a major exporter of diamonds to other countries.
- India exports tea to the United Kingdom.
c) 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”. This type of trade is also known as “Re-export Trade”.
For example:
- India importing oil seeds from America and exporting the same to Malaysia.
- India importing oil from Iraq and exporting the same to Nepal.
Question 3.
What is an International Trade? Explain its importance. [May ’17 (AP)]
Answer:
International Trade Meaning: The trade that takes place between nations is called “International Trade”. It is also called “Foreign Trade” or “External Trade”. It involves the exchange of goods or services between the traders of two nations. International trade also involves the exchange of currencies between the nations. International trade is the process of transferring goods produced in one country to the consumers in another country.
Importance:
- Different countries of the world have different amount of 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 the availability of raw material, labour, technical know-how, etc. than 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 requires 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 in the economy Of different countries.
- International trade promotes increased international understanding, exchange of ideas and culture and world peace.
- International trade lowers the prices of goods and services all over the world.
- In the era of globalization, no economy in the world can remain cut off from rest of the world. Therefore every country has to depend upon some other for one or other.
- Foreign trade increases the employment opportunities.
- International trade leads to increase in the incomes and savings of people which will raise the standard of living of the people.
- International trade develops transport and communication means.
Hence, International Trade is necessary for the development of the economy.
Question 4.
Distinguish between Home Trade and Foreign Trade.
Answer:
Home Trade: A trade which takes place within the country is called Home Trade. It is also called “Domestic Trade” or “Internal Trade” or “National Trade”. It takes place within the geographical boundaries of a nation.
International Trade or Foreign Trade:
The trade that takes place between nations is called international trade. It is also called “Foreign Trade” or “External Trade”. It involves the exchange of goods or services between the traders of two nations. International trade is the process of transferring goods produced in one country to the consumers in another country.
Differences between Home Trade and Foreign Trade:
| Point of Difference | Home Trade | Foreign Trade |
| 1. Trade | Trade takes place within the countries | Trade takes place with other countries. |
| 2. Currency Exchange | It does not involve any exchange of currency. | It involves exchange of currencies. |
| 3. Restrictions | It is not subject to 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 involves sale, transfer or exchange of goods within a country. | It involves imports and exports of goods. |
| 6. Movement of goods | The movement of goods depends upon internal transport system, e.g. : Roads, Railways, etc. | The movement of goods takes place usually by sea, aircrafts whatever possible. |
| 7. Specialization | It helps to derive benefits of specialization within the country. | It helps all trading countries to derive the benefits of specialization. |
| 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 areas where they are consumed. | It facilitates countries to specialize in the production of goods for which they have maximum relative advantage. |
| 10. Scope of operation | There is scope for operation of demand and supply forces. | The scope for operation of demand and supply forces is restricted. There is no effect of supply and demand on the trading. |
| 11. Mobility of labour and capital | Labour and capital move freely from one part of the country to another. | They do not move freely from one country to another. |
| 12. Risk of fluctuation in exchange rates. | Home trade is safe in this respect. | External value of the currency fluctuates. |
| 13. Trade Quotations | Quotations and invoices are not very comprehensive. | In this trade, there are a number of typical quotations, invoices which are comprehensive. |
Question 5.
Explain the limitations and problems of international trade.
Answer:
The trade that takes place between nations is called “International Trade”. It is also called “Foreign Trade” or “External Trade”. It involves the exchange of goods or services between the traders of two nations. International trade is the process of transferring goods produced in one country to the consumers in another country.
Limitations:
- International trade leads to economic interdependence. It creates a crisis (difficulty) in the war period. In war period, imports and exports of various goods will be stopped.
- International trade may lead to neglect of certain sectors of the economy.
- Unrestricted imports may adversely affect the industrialization of developing countries.
- It leads to unhealthy competition and rivalry among the countries.
- Rigid specialization in few industries on the basis of comparative cost principle may create many difficulties.
Problems:
- Currency problem: As every country has its own currency payments between nations create complications.
- Legal problem: Every country has its own laws and customs. These problems are affecting import and export trade.
- Credit problem: When there is no direct contact between exporters and importers, there exporter has to rely on credit worthiness of the importer.
- Greater risks: When goods are transported over a long distance, they may face greater risk.
- Time gap: There is a wide gap of time between dispatch of goods and the goods received and paid.
- High cost of transport: Due to long distance, there is difficulty in proper transportation and communication between countries. Thus there is high cost of transportation.
Question 6.
What is SEZ? Explain their objectives. [Mar. ’19,’18; May ’22,’17 (AP)]
Answer:
Special Economic Zone (SEZ) is a geographical region developed to promote exports and employment oriented production units. They are established in backward regions with liberal economic laws. In other words, 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 attracting larger foreign investments. It is intended to make SEZs as engines for economic growth. The SEZ scheme was first announced in the EXIM Policy 2000. The SEZ ACT was passed by Parliament in May 2005.
Objectives:
- Generation of additional economic activity,
- Promotion of exports of goods and services,
- Promotion of investment from domestic and foreign sources,
- Creation of employment opportunities,
- Development of infrastructural facilities.
Question 7.
Explain the main advantages of SEZs. [Mar. (AP) ’17]
Answer:
Advantages: The following are the major benefits of SEZs.
- Employment Generation: SEZs are considered as highly effective tools for job creation.
- Economic Development: SEZs are viewed and act as the engines for economic development.
- Growth of Labour Intensive Manufacturing Industry: Establishment of SEZs would lead to fast growth of labour intensive manufacturing and service industries in the country.
- Balanced Regional Development: SEZs are beautifully crafted initiatives for achieving the balanced regional development.
- Capacity Building: SEZs are important for stronger capacity building. SEZs are allowed 100% foreign direct investment for development of townships in the economy.
- Export Performance: SEZs create dynamism in the export performance of a country by eliminating false resulting from tariffs and other trade barriers, the corporate tax system and excessive bureaucracy. [Tariff – list of fixed charges; Bureaucracy – a system of govt, working for government.]
Question 8.
Describe the criticism labeled against SEZs.
Answer:
Special Economic Zones (SEZs) are specific geographical regions developed to pro¬mote exports and employment oriented production units. They are established in backward regions with liberal economic laws. In other words, SEZ is a geographical region that has economic laws that are more liberal than a country’s economic laws. The SEZ’s main aim is attracting larger foreign investments. The SEZ scheme was first announced in the EXIM Policy of 2000. The SEZ Act was passed by our Parliament in May 2005.
Disadvantages:
- The major criticism against SEZs is the acquisition of large area of agricultural land. This displaces many people from their traditional livelihood and employment sources such as farming, fishing, etc.
- There has been a criticism regarding the governance model of SEZs and their accountability. There would be no democratic local governance institutions in SEZs.
- There are several environmental and health problems in the establishment of SEZs. SEZ Act is completely silent on environmental issues.
- There is a strong criticism for payment of meagre and inadequate compensation and rehabilitation measures to the displaced people.
- The SEZs are encouraging real estate speculation which leads to many irregularities.
- SEZs are established in backward areas for bringing balanced regional development but it has not happened. Majority of the units are located nearer to larger cities.
Question 9.
What are the incentives provided in the APSEZs?
Answer:
The Government of Andhra Pradesh is encouraging new entreprenuers by providing incentives for SEZ units.
Incentives for SEZ units:
- Exemption from duties and excise
- 50% of new capital, i.e. invested in last 5 years
- 100% FDI (Foreign Direct Investment)
- In hours customs clearance
- Job work on behalf of domestic exporters for direct export allowed
- Full freedom for subcontracting abroad
- Commodity hedging by SEZ units permitted
- Stamp duty waiver
- Benefits from the AP Industry Policy 2010-2015
- VAT, Sales Tax, Octroi, etc. exemptions
- Electricity subsidy
- Single window clearance system at state level
- Reimbursement of duty paid on furnace oil, produced from domestic oil companies to SEZ units as per the rate of drawback notified by Directorate General of Foreign Trade.
Question 10.
Define Wholesaler. Explain various services of wholesaler to manufacturer and retailers.
Answer:
The traders who are engaged in wholesale trade are called wholesalers. Wholesale trade means buying and selling goods in relatively large quantities or in bulk. A wholesaler buys goods in bulk directly from manufacturers and sell them in small lots to retailers or industrial users. A wholesaler is the first intermediary and serves as a link between producers and retailers. Thus he serves both manufacturers and retailers.
Services of wholesaler:
There are different services rendered by the wholesaler, they are (1) Services to the Manufacturers and (2) Services to the retailers.
1) Services to the Manufacturer:
- A wholesaler is the intermediary and serves as a link between producers and retailers.
- Wholesaler undertakes various sales promotion programmes, thus, the manufacturer concentrates on the manufacturing operations, i.e. production.
- The wholesaler buys in large quantities. Thus, he enables the manufacturer to get the benefit of economies of large scale production.
- The wholesalers collect orders from a large number of retailers and supply them from the stock of goods supplied in bulk by the manufacturer. So there is no need to store the stock by the manufacturers.
- The wholesaler helps the manufacturer to regulate his production in accordance with the changing requirements of the market by giving the information from retailers.
- Wholesalers help in price stabilization. They stock goods during the slack season and sell them during the period of peak demand.
- Wholesaler provides financial help to producers by making advance payment to them.
2) Services to the Retailers:
- The wholesaler acts as a constant source for retailers to draw their supplies whenever they require. Thus, the retailer need not carry stock of large variety of products to meet the demand of his customers.
- The wholesaler provides a greater opportunity for a retailer to save transport and packing costs by giving the free delivery and packing.
- Wholesalers enable retailers to obtain supplies more quickly than they could by placing orders directly to different manufacturers. Hence buying problem is considerably simplified.
- Wholesalers help retailers to take advantage of favourable fluctuations in prices.
- Wholesalers specialize in a particular line of products. Therefore, he passes on his knowledge of the market conditions relating to such products to the retailers.
- Wholesalers undertake various sales promotion activities, this relieves the retailer from the cost on sales promotion.
- Wholesalers provide financial assistance of material significance to retailers. This is done by allowing credit to the retailers purchasing goods from them. This in effect helps the retailer to manage his business with smaller amount of working capital.
Question 11.
Who is Retailer? Explain the services of Retailer.
Answer:
Trader who is engaged in retail trade is called retailer. He purchases goods from wholesaler and sells in very small quantities to ultimate consumers. A retailer is the last link in the chain of distribution of goods. Big departmental stores, super bazaar, hawkers and other shopkeepers are examples of retailers.
Services of Retailers:
- Retailers find the tastes and desires of the customers and the same will be informed to the wholesalers.
- Retailers buy and stock goods suitable to the consumers.
- Retail shops are situated in convenient localities, usually very near to the consumers’ residence.
- They sell to consumers in quantities, which suit the pockets of different individuals.
- Many retailers offer free home delivery of goods purchased.
- Many types of retailers sell goods on credit to their customers whom they know personally.
- Retailers make available to their customers goods of the sizes, styles, types, quantities and prices they prefer.
- Retailers supply information and give expert advice to consumers. If retailers do not bring new product knowledge to consumers, they would not know that new products are available,
- Many retailers visit their customers to collect orders and make enquiries about the goods supplied earlier.
Question 12.
Explain the types of Retailers.
Answer:
Retailers may be broadly classified into two types. They are
- Small Scale Retailers,
- Large Scale Retailers.
1. Small Scale Retailers: Small scale retailers move from one place to others, as they do not possess their own fixed shops. In our country India, we have millions of small scale retailers in rural as well as urban markets, scattered widely all over the world. The following are some of the types of small scale retailers.
a) Unit Store Traders: Traders who own unit stores are known as unit store traders, who deal with only one variety of product such as drugs, clothes, shoes, books, etc. Single line stores are also called speciality shops since they are specialized in only one item.
b) Street Traders: Street traders are also called footpath traders. These traders display their stock on footpaths of busy cities and towns. The prominent places of business are bus stands, railway stations, parks and other busy centers.
c) Market Traders: Market traders open their shops on fixed days or dates in the specific areas. The time interval may be a week or a fortnight or a month. They join fairs and festivals which are normally organized in the villages or towns on specific dates.
d) Hawkers: Hawkers don’t have any fixed place of business. They move from one place to another carrying their goods on hand cart or cycle and sell them door to door.
e) Cheap-Jacks: Cheap-Jack is a retailer who has fixed place of business in a locality and goes on changing his place of business to exploit the market opportunities. They deal in cheap varieties of ready made garments, plastics, shoes, etc. The speed of change of place is not as fast as it is in hawkers and peddlers.
f) Syndicate Stores: It is an extension of the mail order business on a small scale. The important characteristic of syndicate stores is that it offers a wide variety of merchandise to customers but seldom sell known brands. There retailers buy most of the unbranded varieties and sell them under their own brand names.
2. Large Scale Retailers: Nowadays large scale retailing has been gaining popularity due to its several benefits like advantages, i.e. large scale purchase, and sales, specialized management practices, risk-bearing capacity, scope for innovation, market research and intensive promotion. The large scale organizations are owned by partnership and companies.
Some of the large scale retailers are discussed below :
a) Super Markets: Super Market is a large retail store selling a wide variety of consumer goods, particularly food and small articles of household requirements. The super market represents the most developed form of self-service retailing. The buyers may be provided with convenience on wheels to carry his purchases from point to point. Thus, it provides individual selection without salesman. Packaging plays an important role in this form of retailing.
b) Departmental Stores: It is a large establishment divided into a number of small shops or departments, each dealing with the sale of one particular product. Departmental stores is a store engaged in retail trade of the wide variety of articles under the same roof. Departmental stores act as a universal supplier of a wide variety of goods and are generally situated in the center of the cities. For example: Big Bazaar, Reliance Mart, etc.
c) Multiple Shops: The multiple shop system is a network of branches located at different places of the country or city. All these branches are under central ownership, management and control. For example, Kumar Shirts, Vijaya Milk Products, etc.
d) Consumer Co-operative Stores: A Co-operative Store is a voluntary association of consumers under prevalent Co-operative Societies Act. The co-operative store is an organization owned, managed and controlled by consumers in order to eliminate the middlemen and their commission. At least ten members are required to register a society or store. Members of the store make joint purchases and sales among themselves at the current market prices.
e) Mail Order Business: Mail order refers to shopping by post, where the orders are accepted and goods are delivered by post. It is a method of non-store, impersonal and direct selling that eliminates the middlemen. Thus, most order business can be defined as an establishment that receives orders by mail and make its sales by mail, parcel, etc.
Short Answer Questions
Question 1.
Define Wholesaler. [Mar. 2020,’18,’17 (AP)]
Answer:
The traders who are engaged in wholesale trade are called wholesalers. Wholesale trade means buying and selling goods in relatively large quantities or in bulk. A wholesaler buys goods in bulk directly from manufacturers and sell them in small lots to retailers or industrial users. A wholesaler is the first intermediary and serves as a link between producers and retailers.
Question 2.
Who is Retailer? [Mar. 2019; May ’17 (AP)]
Answer:
The trader who is engaged in retail trade is called retailer. He purchases goods from wholesaler and sells in very small quantities to ultimate consumers. A retailer is the last link in the chain of distribution of goods. Big department stores, Super bazaar, hawkers, and other shopkeepers are examples of retailers.
Question 3.
What is meant by Internal Trade?
Answer:
A trade which takes place within the country is called internal trade. It is also called “Home Trade” or “Domestic Trade” or “National Trade”. It takes place within geo-graphical boundaries of a nation. Internal trade is subdivided into wholesale and retail trade.
Question 4.
What is import trade?
Answer:
When a country buys or purchases goods from another country, it is called Import Trade”. The needed countries import goods from those countries where those goods are produced cheaply. For example: India imports electronic products from China because China has the most modern technology for producing electronic products cheaply.
Question 5.
What is meant by SEZ?
Answer:
Special Economic Zones (SEZs) are specific geographical regions developed to promote exports and employment oriented production units. They are established in backward regions with liberal economic laws. In other words, SEZ is a geographical region that has economic laws that are more liberal than a country’s economic laws. The SEZ’s main aim is attracting larger foreign investments. The SEZ scheme was firstly announced in the EXIM Policy of 2000. The SEZ Act was passed by our Parliament in May 2005.
Question 6.
Explain the types of wholesalers.
Answer:
Wholesalers are generally classified into the following kinds.
1) Merchant Wholesaler: Merchant wholesalers are maintaining their own business independently. They are full service and limited service distributors. They sell goods or services to the retailers only but not to the ultimate consumers.
2) Manufacturer Wholesaler: These types of wholesalers undertake manufacturing of goods and sell the goods manufactured by other manufacturer that means he acts both a manufacturer as well as a wholesaler;
3) Retail Wholesaler: Retail wholesaler acts as both a wholesaler as well as a retailer. He purchases goods from manufacturers in large quantities and sell them in small quantities to the ultimate consumers or customers.
Question 7.
What is the industrial infrastructure provided by A.P?
Answer:
AP Industrial Infrastructure:
- Common effluent treatment plant
- Water supply distribution network
- CC storm water drainage system
- Sewerage treatment with recycling facility
- Lush green landscaping
- Provision of dedicated gas connectivity
- 4 lane internal road network
- Power supply
- Skill development centre.