International Trade (VSAQs)
Commerce-2 | 8. International Trade – VSAQs:
Welcome to VSAQs in Chapter 8: International Trade. This page includes the most important FAQs from previous exams. Each answer is provided in simple English and presented in the exam format. This approach helps you prepare effectively and aim for top marks in your final exams.
VSAQ-1: Bonded Warehouses. (OR) What is Bonded Warehouses? (OR) Write a short note on bonded warehouses.
Bonded warehouses are specialized storage facilities located near ports or customs areas, designed to store imported goods before the payment of duties or taxes. These warehouses are maintained by customs authorities and offer importers a secure place to store their goods temporarily, especially if the goods are not needed immediately or are intended for re-export. By storing goods in bonded warehouses, importers defer the payment of import duties until the goods are actually taken out of storage, making it a flexible and cost-effective solution in international trade.
Example: An importer brings in electronics from another country and stores them in a bonded warehouse near the port. The importer can decide to re-export the goods or sell them later, paying the necessary duties only when the goods leave the warehouse.
VSAQ-2: Write any two differences between Internal trade and International trade.
Geographic Scope:
Internal trade occurs within the boundaries of a single country, involving transactions between buyers and sellers located within the same nation. For example, a business in Delhi selling goods to a buyer in Mumbai is engaging in internal trade.
In contrast, international trade takes place across national borders, involving transactions between buyers and sellers from different countries. For example, a company in India exporting textiles to the United States is engaged in international trade.
Regulatory Environment:
Internal trade is governed by the laws, regulations, and trade policies of one country. These regulations are typically less complex, as they only need to comply with the country’s domestic rules.
On the other hand, international trade involves navigating a more complex regulatory environment, including compliance with multiple countries’ laws, international trade agreements, tariffs, and customs duties. For instance, an exporter must adhere to both the export regulations of their own country and the import regulations of the destination country.
VSAQ-3: Bill of Lading. (OR) What is Bill of Lading?
A Bill of Lading (BOL) is a crucial document in international trade, serving as a receipt issued by a shipping company to the shipper, a contract outlining the terms of transport, and proof of ownership of the goods during transit. This document is essential for customs clearance and plays a key role in trade finance, as it can be used to transfer ownership of the goods to a buyer or a bank, depending on the terms of the trade agreement.
Example: When a company exports machinery overseas, the shipping company issues a Bill of Lading to the exporter, which the exporter can use to claim payment from the buyer or to clear customs at the destination port.
VSAQ-4: Exchange Rate. (OR) What is Exchange Rate?
The exchange rate is the rate at which one currency can be exchanged for another, essentially determining the value of one country’s currency relative to another’s. Exchange rates are crucial in international trade, as they influence the cost of exporting and importing goods and services. Fluctuations in exchange rates can significantly impact the profitability of cross-border transactions. To manage these risks, businesses often use strategies like fixing or hedging exchange rates in advance when dealing with international buyers.
Example: If an Indian exporter agrees to sell goods to a buyer in the United States, the exchange rate between the Indian Rupee (INR) and the US Dollar (USD) will determine how much the exporter earns in Rupees. If the Rupee depreciates against the Dollar, the exporter may receive more Rupees for the same amount of Dollars.