ib notes

Description
tybbi 6th sem ib notes

CHAPTER 3 – LEGAL ASPECTS OF INTERNATIONAL BUSINESS Q. What are the laws relating to product packaging and labelling in international markets? (May 10) – Vipul Pg 61-63 Q. Legal implication of WTO (May 07, 09) OR Impact of WTO on developing country’s business – Vipul Pg 65-67 Q. Importance of Intellectual property Rights and Patents (Nov 06)
Intellectual property is a general term for the set of intangible assets owned and legally protected by a company from outside use or implementation without consent. Stemming from its ability to provide a firm with competitive advantages, defining IP as an asset aims to provide it the same protective rights as physical property. Obtaining such protective rights is critical as it prevents replication by potential competitors—a serious threat in a web-based environment or the mobile technology sector, for example. An organization that owns IP can realize value from it in several ways, namely through utilizing it internally—for its own processes or provision of goods and services to customers—or sharing it externally. The latter can be achieved through legal mechanisms such as royalty rights. There is an extensive international system for defining, protecting, and enforcing intellectual property rights, comprising both multilateral treaty schemes and international organizations. Examples of such treaties and bodies include the Trade-Related Aspects of Intellectual Property Rights (TRIPs), World Intellectual Property Organization (WIPO), World Customs Organization (WCO), United Nations Commission on International Trade Law (UNCITRAL), World Trade Organization (WTO), and European Union (EU). Nonetheless, there are variations in the respect for and enforcement of rights at a local level. In today's intellectual era, India has shown a considerable growth in its research and development. The presence of well established state of the art labs of Indian as well as multinational companies in the country has clearly proved the Indian IP status in the world. The rise in Indian economy is a clear impact of Intellectual Property (IP) influence in the country. By setting up new technology, incubation centres in various parts of the country and providing financial aids to the technologist, the Research & Development (R&D)status of the country has been boosted up. India being a developing nation, has taken giant leaps in competing towards Trade Related Intellectual Property Rights (TRIPS) agreement and in compliance of US and European Intellectual Property Right (IPR) structure. The 21st century can be referred to as the century of technology, knowledge and in fact the regime of intellect. Earlier when IPR was in its preliminary stage, lot of problems arose relating to its implementation, policies, Act/ Rules, financial and governmental support. Earlier, companies and inventors were also not aware of IPR, therefore risk of infringement was at an alarming level without a healthy system and companies were not interested to go for

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R&D process in India. This resulted in the death of inventions, high risk of infringement, economic loss and decline of an intellectual era in the country. Keeping in view all the above problems, India has taken strong steps in strengthening IPR in the country. For example, the first Indian Patent Law came in 1856. Further, the same was modified from time to time by Indian patent system. Earlier, when Indian Patent system was not in compliance with TRIPS, there was a risk of a healthy Patent protection provision in India. But today the condition has totally changed. India is now a member of TRIPS agreement and our patent system is fully compliant with the TRIPS. Even though Indian Patent Act contains all the TRIPS flexibilities, the relevant provisions require fine tuning, especially of those related to the patent protection, compulsory license and government use.

Q. FEMA 1999 (Nov 08, S.N. April 12)
The Foreign Exchange Management Act (FEMA) is a 1999 Indian law "to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India". It was passed in the winter session of Parliament in 1999, replacing the Foreign Exchange Regulation Act (FERA). This act seeks to make offenses related to foreign exchange civil offenses. It extends to the whole of India, replacing FERA, which had become incompatible with the pro-liberalisation policies of the Government of India. It enabled a new foreign exchange management regime consistent with the emerging framework of the World Trade Organisation (WTO). It is another matter that the enactment of FEMA also brought with it the Prevention of Money Laundering Act of 2002, which came into effect from 1 July 2005. Unlike other laws where everything is permitted unless specifically prohibited, under this act everything was prohibited unless specifically permitted. Hence the tenor and tone of the Act was very drastic. It required imprisonment even for minor offences. Under FERA a person was presumed guilty unless he proved himself innocent, whereas under other laws a person is presumed innocent unless he is proven guilty. The main features of FEMA are as follows: - Activities such as payments made to any person outside India or receipts from them, along with the deals in foreign exchange and foreign security is restricted. It is FEMA that gives the central government the power to impose the restrictions. - Restrictions are imposed on people living in India who carry out transactions in foreign exchange, foreign security or who own or hold immovable property abroad. - Without general or specific permission of the MA restricts the transactions involving foreign exchange or foreign security and payments from outside the country to India – the transactions should be made only through an authorised person. - Deals in foreign exchange under the current account by an authorised person can be restricted by the Central Government, based on public interest.
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- Although selling or drawing of foreign exchange is done through an authorised person, the RBI is empowered by this Act to subject the capital account transactions to a number of restrictions. - People living in India will be permitted to carry out transactions in foreign exchange, foreign security or to own or hold immovable property abroad if the currency, security or property was owned or acquired when he/she was living outside India, or when it was inherited by him/her from someone living outside India. - Exporters are needed to furnish their export details to RBI. To ensure that the transactions are carried out properly, RBI may ask the exporters to comply with its necessary requirements.

Q. Legal environment for international business (Oct 11) – Vipul Pg 51-53 ****************************************

CHAPTER 5 – INTERNATIONAL STRATEGY Q. What is globalisation of an existing business? (May 09) – Vipul Pg 91-92 Q. Explain the process of globalisation of business? (Nov 07) – Vipul Pg 92 Q. Business Expansion strategies for globalisation? (May 06, 11) OR What are the different adopted by firms for globalisation? (May 08, 09; Nov 08) – Vipul Pg 95-101 Q. What is a joint venture? How is it used to expand business? 98-99 Q. What is countertrade? Explain with examples 101
(May 10)

– Vipul Pg

(May 06, 07; Oct 11)

– Vipul Pg 100-

Q. Short note on Licensing and Franchising (May 10) – Vipul Pg 95-96 **********************************************

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CHAPTER 6 – INTERNATIONAL MARKETING Q. Meaning of international marketing (Nov 08; May 06, 11) and the factors to be considered while selection of international market for an existing business. (May 06)
Marketing is the process of planning and executing the conception, distribution of goods and services in order to satisfy the individual and organisational objectives. International marketing is an extension to marketing because of the liberalised market environment. Companies have entered into international markets to deal with various cultural, political and legal environments. International marketing is not the same as international trade. Only a part of international trade represents international marketing. International marketing is simply an attitude of the mind and approach of a company to seek profits around the world. It also includes home market. Thus, international marketing is the function of a multinational company

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Q. Explain the dynamics of product and market selection 116 Q. What is systematic selection of international markets? 118

(May 09)

– Vipul Pg 115-

(Nov 06)

– Vipul Pg 116-

Q. What is market segmentation? What is its importance in international marketing? (May 10) – Vipul Pg 118-119 Q. How to analyse the international competition? (Oct 11) – Vipul Pg 120-121 Q. Different methods of international marketing (Nov 08; May 11) – Vipul Pg 122-124 Q. How is international marketing different from domestic marketing? (May 08)
International Marketing It refers to those activities which results into transfers of goods and services from one country to another. International trade is characteristics by tariff and non tariff barriers. It involves exchange on the basis of different currencies. Exchange takes place under government rules and regulations. There is high degree of government interference. Trade should be done taking diverse into consideration. Even things like colour combination can be affect the trade. Letter of credit is normally as Domestic Marketing It refers to those activities which results into transfers of goods and services inside the country itself. Domestic marketing has no such restrictions. It involves exchange in the basis of same currencies. Government in interference is zero or minimum only in case of essential commodities. Culture does not affect in domestic marketing. Cash, Cheques, DD’s are the most
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1. Meaning

2. Barriers 3. Currencies 4.Government Interference

5. Culture 6.Mode of

Payment 7.Mobility of Factors of Production 8. Competition 9. Documentation 10. Risk

mode of payment. Factors of Production are relatively immobile as compared to domestic marketing. International Trade is subject to intense competition. International Marketing is subject to complex documentation International Marketing is subject to high risk. Political, foreign exchange risk, bad debt risk are few of them.

common. Domestic Trade enjoys greater mobility in factors of production. Competition is not as intense as it is in international marketing. Domestic trade does not involve much of documentation. Domestic Marketing is also subject to risk but not as high as international marketing.

*****************************************************

CHAPTER 7 – TRANSATIONAL CORPORATIONS Q. What is a multinational corporation? Why are the MNC’s increasing? (May 06)
According to David E. Lilien, ?Multinational Corporation means corporations which have their home in one country but operate and live under the laws and customs of other countries as well.? Multinational Corporation is an enterprise whose ownership and activities are spread in more than one country. It is a giant firm with its headquarters located in an advanced country but conducts a variety of business operations in several other countries. For example, Pepsi-Cola from U.S.A. Siemens form Germany, Sony from Japan and Philips from Holland are some the MNCs operating at international levels. MNCs are also called as global corporations. They earn huge profits and dominate global marketing activities. Most of the MNCs are dominated by the developed countries and generally established in the rich and developed countries. They operate at global level. Cont with Features and Benefits of MNCs – Vipul Pg 130-132

Q. Features and Benefits of MNCs to host countries (Nov 11) – Vipul Pg 130-132 Q. Problems of MNCs (Nov 11) – Vipul Pg 132 Q. What is Transnational Corporation? How is it different from MNC? Vipul Pg 133-135
(May 11)



Q. MNCs are said to be boon and a curse for developing countries. Explain
09) (Solution:-

(May

Benefits and Problems of MNCs)
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Q. Transnationals are more convenient in the context of globalisation of business. Explain (May 07) ? Explain TNC and its features ? Vipul Pg 135 – TNC and global economy Q. Role of TNCs in the international business (Nov 07) OR Role of MNCs in the development of international business (Nov 06) OR Role of MNC and TNC in international business (May 12) – Vipul Pg 137 Q. Why do firms become multinational? (May 06) ? Explain features and benefits of MNCs Q. Process of building a MNC (May 07) – Vipul Pg 95-101 (any 5) *************************************************** CHAPTER 8 – INTERNATIONAL HUMAN RESOURCE MANAGEMENT Q. Meaning of business ethics (Nov 06, 07) – Refer to Business ethics notes Q. Need for business ethics in international business (Nov 07) ? Explain business ethics ? Explain international business Q. HRM strategy in international business (Nov 07; Oct 11; May 12) – Vipul Pg 153-155 Q. What is relationship marketing? What are its benefits? (Nov 06; May 07) – Vipul Pg 150-151 Q. Corporate governance in international business (May 12) – ? Explain corporate governance ? Explain international business *******************************************************

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CHAPTER 9 – INTERNATIONAL FNANCIAL MARKETS Q. SAARC (May 10)
The South Asian Association for Regional Cooperation (SAARC) is an economic and geopolitical cooperation among eight member nations that are primarily located in South Asia continent. Its secretariat is headquartered in Kathmandu, Nepal. The idea of regional political and economical cooperation in South Asia was first coined in 1980 and the first summit held in Dhaka on 8 December in 1985 led to its official establishment by the governments of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. In the intervening years, its successors have grown in size by the accession of new member states. Afghanistan was the first to have been accessed in the physical enlargement of the SAARC in 2007. The SAARC policies aim to promote welfare economics, collective self-reliance among the countries of South Asia, and to accelerate socio-cultural development in the region. The objectives and the aims of the Association are: 1. to promote the welfare of the people of South Asia and to improve their quality of life; 2. to accelerate economic growth, social progress and cultural development in the region and to provide all individuals the opportunity to live in dignity and to realise their full potential ; 3. to promote and strengthen selective self-reliance among the countries of South Asia; 4. to contribute to mutual trust, understanding and appreciation of one another's problems; 5. to promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields; 6. to strengthen co-operation with other developing countries; 7. to strengthen co-operation among themselves in international forums on matters of common interest; and 8. to co-operate with international and regional organisations with similar aims and purposes. 9. to maintain peace in the region The South Asian Free Trade Area or SAFTA is an agreement which came into force in 2006. SAFTA requires the developing countries in South Asia (India, Pakistan and Sri Lanka) to bring their duties down to 20 percent in the first phase of the two-year period ending in 2007. In the final five-year phase ending 2012, the 20 percent duty will be reduced to zero in a series of annual cuts. The least developed nations in South Asia (Nepal, Bhutan, Bangladesh, Afghanistan and Maldives) have an additional three years to reduce tariffs to zero. India and Pakistan approved the treaty in 2009, whereas Afghanistan as the 8th member state of the SAARC approved the SAFTA protocol on the 4th of May 2011.
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Q. NAFTA (May 10)

Q. ASEAN (May 12)
The Association of Southeast Asian Nation (ASEAN) is a political and economic organisation of ten countries located in Southeast Asia, which was formed on 8 August 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand. Since then, membership has expanded to include Brunei, Burma (Myanmar), Cambodia, Laos, and Vietnam. Its aims include accelerating economic growth, social progress, cultural
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development among its members, protection of regional peace and stability, and opportunities for member countries to discuss differences peacefully. The aims and purposes of ASEAN are: 1. To accelerate the economic growth, social progress and cultural development in the region through joint endeavours in the spirit of equality and partnership in order to strengthen the foundation for a prosperous and peaceful community of Southeast Asian Nations; 2. To promote regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries of the region and adherence to the principles of the United Nations Charter; 3. To promote active collaboration and mutual assistance on matters of common interest in the economic, social, cultural, technical, scientific and administrative fields; 4. To provide assistance to each other in the form of training and research facilities in the educational, professional, technical and administrative spheres; 5. To collaborate more effectively for the greater utilisation of their agriculture and industries, the expansion of their trade, including the study of the problems of international commodity trade, the improvement of their transportation and communications facilities and the raising of the living standards of their peoples; 6. To promote Southeast Asian studies; and 7. To maintain close and beneficial cooperation with existing international and regional organisations with similar aims and purposes, and explore all avenues for even closer cooperation among themselves.

Q. EURO (May 06) – Vipul Pg 189-190 Q. Cross Border alliance (May 07, 09, 11, 12) - Vipul Pg 194-198 Q. Deregulation of financial markets (Oct 11) – Vipul Pg 177-179 Q. Emerging Markets (Nov 06, May 09, 12) – Vipul Pg 179-182 *************************************************

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CHAPTER 10 – EXPORT FINANCE & RISK MANAGEMENT Q. What is export finance? (May 09, 10, 11) – Vipul Pg 201 Explain the role of Exim Bank in Export Finance (May 07, 08) OR Facilities provided by commercial banks for exporters (May 08)
The Export-Import Bank of India was set up the Government of India in 1982 as a public sector financial institution under an Act passed in the parliament for the purpose of financing, facilitating and promoting foreign trade of India. The board of directors manages the EXIM BANK with representation from government financial institutions, banks and business community. FUNCTIONS: Lending Programmes to Indian Exporters: ? Suppliers’ credit: This enables the exporters to extend credit to overseas importers of eligible Indian goods. ? Finance for consultancy and technology services; this enables Indian exporters of consultancy and technology services to extend term credit to overseas importers. ? Pre-shipment credit: This enables Indian exporters to buy raw materials and other inputs for fulfilling export contracts involving cycle time exceeding six months. ? Finance for deemed exports. ? Finance for EOU and EPZ Units ? Software Training Institutes ? Export marketing finance ? Export-Product Development Finance: these Indian firms to undertake product development, R & D for exports. Services Offered to Indian Exporters: ? Underwriting: This enables the Indian exporters to raise finance from capital markets with the backing of EXIM Bank's underwriting commitment. ? Forfeiting: This Indian exporters to convert sale to cash on without recourse basis. ? Guarantee Facility: To execute export contracts and import transactions. ? Business Advisory and Technical assistance ? Cooperation arrangement with African Management Services. For Commercial Banks: ? Refinance of Export credit ? Bulk import finance ? Guarantee cum Refinance supplier's credit Other activities: ? The bank helps Indian companies go global by setting up subsidiaries and joint ventures abroad. ? It provides information to potential exporters about projects abroad especially about multilaterally agencies.
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? It also helps companies in preparing bids according to strict condition prescribed by the multilateral agencies. ? It also entertains proposals for various facilities under the European Community Investment Partners like feasibility studies for setting up export units. ? The bank introduced the "cluster of Excellence" programme for up gradation of quality standards and obtaining ISO certification

Q. What is packing credit or pre-shipment finance? What are its conditions?
07)

(Nov

Packing credit is nothing but a pre shipment finance given to exporters with a law interest rate to boost exports. Packing credit is given by authorized bank by the instruction of Reserve Bank as a government policy to promote exporters to earn foreign currency to strengthen financial status of a country. As per Reserve Bank by the instruction of Government, no exporter shall suffer for want of fund for exports. Government promotes all exporters to earn foreign exchange and extend maximum support to encourage exports. Packing credit is a pre shipment finance given by bank to procure raw materials and arranging goods ready for export. Banks provide packing credit against the stock of raw materials or finished goods also in certain cases. The packing credit is a separate finance given to exporters not connected with any limit of other loans given by bank. A separate packing credit loan account is opened for each exporter separately if needed. Once the amount of shipment received from the overseas buyer, the said packing credit amount will be adjusted by bank and close the loan under the said export order. In order to obtain packing credit facility, the exporter has to approach their bank with export order. Bank official visits the exporter’s factory and get convinced on the sock of goods and assess the value with export order. Packing credit loan is one of the best financial assistance by bank to promote the export trade. The Guarantee, issued for a period of 12 months based on a proposal from the bank, covers all the advances that may be made by the bank during the period to an individual exporter within an approved limit. The bank is required to submit monthly declarations of advances and repayments and to pay premium at the rate of 13 paisa per Rs.100 per month on the highest amount outstanding on any day. Approval of ECGC has to be obtained if the period for repayment of any advance is to be extended beyond 360 days from the date of advance. If the bank apprehends a loss, it is required to call back the outstanding advances and to take suitable action to prevent or to minimize the loss including any action that may be suggested by ECGC. The bank will be entitled to claim 66 2/3% of its loss from ECGC if the entire amount due from the exporter is not recovered within a period of four months from the due date of repayment. The claims are payable if ECGC is satisfied that the bank had conducted the account with normal banking prudence and has also complied with the terms and conditions of the Guarantee. Any amount that is recovered by the bank after the settlement of the claim has to be
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shared between the Corporation and the bank in the same ratio in which the loss was originally borne by them.

Q. What is letter of credit? What is its importance in export finance? (May 07)
A letter of credit is a written commitment to pay, by a buyer's or importer's bank (called the issuing bank) to the seller's or exporter's bank (called the accepting bank, negotiating bank, or paying bank). A letter of credit guarantees payment of a specified sum in a specified currency, provided the seller meets precisely-defined conditions and submits the prescribed documents within a fixed timeframe. To establish a letter of credit in favour of the seller or exporter (called the beneficiary) the buyer (called the applicant or account party) either pays the specified sum (plus service charges) up front to the issuing bank, or negotiates credit. Letters of credit are formal trade instruments and are used usually where the seller is unwilling to extend credit to the buyer. In effect, a letter of credit substitutes the creditworthiness of a bank for the creditworthiness of the buyer. Unlike a bill of exchange, a letter of credit is a nonnegotiable instrument but may be transferable with the consent of the applicant. Letter of credit advantages for the seller or exporter
? ? ? ? ?

The seller has the obligation of buyer's banks to pay for the shipped goods; Reducing the production risk, if the buyer cancels or changes his order The opportunity to get financing in the period between the shipment of the goods and receipt of payment (especially, in case of deferred payment). The seller is able to calculate the payment date for the goods. The buyer will not be able to refuse to pay due to a complaint about the goods

Letter of credit advantages for the buyer or importer
? ? ? ? ?

The bank will pay the seller for the goods, on condition that the latter presents to the bank the determined documents in line with the terms of the letter of credit; The buyer can control the time period for shipping of the goods; By a letter of credit, the buyer demonstrates his solvency; In the case of issuing a letter of credit providing for delayed payment, the seller grants a credit to the buyer. Providing a letter of credit allows the buyer to avoid or reduce pre-payment.

Types of Letter of Credit (May 08) - Vipul T.B. Pg 217-218 (any 5)

Q. What is financial risk? How to evaluate the financial risk in international business? (May 07, Oct 11) – Vipul Pg 218-219 Q. What are import-export documents? What is the legal importance of documents? (May 08, 10, 12) – Vipul Pg 226-228

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Q. Role of ECGC in international business (Nov 06, 08; May 07, 08)
Export Credit Guarantee Corporation of India Ltd. (ECGC) is a Government of India Enterprise which provides export credit insurance facilities to exporters and banks in India. It functions under the administrative control of Ministry of Commerce & Industry, and is managed by a Board of Directors comprising representatives of the Government, Reserve Bank of India, banking, insurance and exporting community. Over the years, it has evolved various export credit risk insurance products to suit the requirements of Indian exporters and commercial banks. ECGC is the seventh largest credit insurer of the world in terms of coverage of national exports. Objectives of ECGC are as follows: ? Provides a range of credit risk insurance covers to exporters against loss in export of goods and services ? Offers Export Credit Insurance covers to banks and financial institutions to enable exporters to obtain better facilities from them ? Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan It helps the exporters in the following ways: ? Offers insurance protection to exporters against payment risks ? Provides guidance in export-related activities ? Makes available information on different countries with its own credit ratings ? Makes it easy to obtain export finance from banks/financial institutions ? Assists exporters in recovering bad debts ? Provides information on credit-worthiness of overseas buyers Payments for exports are open to risks even at the best of times. The risks have assumed large proportions today due to the far-reaching political and economic changes that are sweeping the world. An outbreak of war or civil war may block or delay payment for goods exported. Economic difficulties or balance of payment problems may lead a country to impose restrictions on either import of certain goods or on transfer of payments for goods imported. In addition, the exporters have to face commercial risks of insolvency buyers. The commercial risks of a foreign buyer going bankrupt or losing his capacity to pay are aggravated due to the political and economic uncertainties. Export credit insurance is designed to protect exporters from the consequences of the payment risks, both political and commercial, and to enable them to expand their overseas business without fear of loss.

Q. Different types of risk for an exporter (May 08)
Export business can be a great opportunity, but it is risky and challenging at the same time. These risks, totally different from those encountered domestically, are unavoidable, but you can minimize them taking proper precautions. Find here some useful information regarding different export business risks and how to manage them.
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One might face different types of risks in the export business: 1. Political Risk: The country where your client is located may experience major political instability. Such instability could result in defaults on payments, confiscation of property, exchange transfer blockages, etc. 2. Legal Risk: At domestic level, businesses are subject to a myriad of laws, regulations, and restrictions. But internationally, there are more complexities. International transactions are governed by unilateral measures, bilateral relationships, multilateral and regional agreements. This difference in law may have impact in such areas as taxation, currency dealings, property rights, employment practices, etc. 3. Country Risk - Country risk refers to the risk that a country won't be able to honour its financial commitments. When a country defaults on its obligations, this can harm the performance of all other financial instruments in that country as well as other countries it has relations with. Country risk applies to stocks, bonds, mutual funds, options and futures that are issued within a particular country. This type of risk is most often seen in emerging markets or countries that have a severe deficit. 4. Internet Frauds: Like in any other place, the Internet is not free from scammers and frauds. These people are very cunning and being smart it is not enough to protect yourself from them. It is not only individuals who are targets for a variety of illegal schemes but also small as well as large business organizations. 5. Quarantine Compliance: Many countries (especially the European countries) have strict quarantine requirements to prevent the spread of contagious disease. Before sending a shipment, ensure that your products are allowed to be exported to the destination country. 6. Foreign-Exchange Risk - When investing in foreign countries you must consider the fact that currency exchange rates can change the price of the asset as well. Foreignexchange risk applies to all financial instruments that are in a currency other than your domestic currency. As an example, if you are a resident of America and invest in some Canadian stock in Canadian dollars, even if the share value appreciates, you may lose money if the Canadian dollar depreciates in relation to the American dollar. 7. Credit Related Risk: While doing business internationally, trading can seem complicated and risky. Besides political, legal and other risks, the most common problem businesses face is the risk in the transaction. To overcome payment related risks, an exporter needs good understanding of different payment methods in international trade. Minimizing export business risks: 1. How to minimize political risk and country risks:
?

Always do extensive market research and try to about the politics, economy, culture and business environment of the country where your client is located. Besides language barriers and legal restrictions, your business may be get affected by suddenly introduced new regulations, political riots or natural disasters.
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? ? ?

If you are dealing in a foreign language, taking assistance of a professional language support is a good idea. In export business, a clear agreement is very important to get rid of confusion and to reduce risk. If you find that doing business with a company in a foreign land is very risky, don't get involved in long term business deals.

2. Minimizing Legal Risks: Often, we find that most of the international business laws are based on treatises. So, it is always a good idea to locate the relevant treatise while researching for any specific international business law. The Internet is a great source and you would certainly get a lot of information in hundreds of websites. While studying the laws, make sure whether there is any possibility that a conflict would arise between the international and the domestic law. 3. Minimizing Credit Related Risks:
? ?

?

Always use a reliable payment method for transaction Always try to know exactly what costs you and your client are each responsible for. Shipping or air freight, import duties, taxes, onward delivery to your premiseconsider all these things before signing the contract Foreign currency exchange rate could change, and therefore, it is important to keep yourself ready for some extra expenses

4. Assessing the Creditworthiness of Your Customer:
?

? ? ? ?

Be cautious in understanding the offer; does he want to buy your product without asking about the price or quality? Has he accepted the deal without bargaining? Is he very quick to know your account number? Analysis all these things and only after that take the next step. Do not provide financial account information of your company unless there is a good reason to do so. Get all the terms and conditions, modes of payment, sales conditions, quality inspection, etc. in writing. Always choose Letter of Credit (L/C). Check the L/C number, opening date & place, name & address of the issuing bank, valid date, shipping date, etc. Request for a nominal payment for samples.

Business at the international level involves different risks which are different from those encountered while doing business at the domestic market.

Q. Foreign Exchange Management Risk (Nov 06, 08; May 11) – Vipul Pg 212-214 ***************************************************

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CHAPTER 11 – INTERNATIONAL BUSINESS ENVIRONMENT IN INDIA Q. Duty Drawback (Nov 06) – Vipul Pg 250 pt 1
Eligibility for Duty Drawback If the exports meet the criteria listed below, the import duty already paid or the guarantee placed on such imports shall be repaid or returned as drawback to the importer. 1. The drawback on such imports is not prohibited by the Ministerial Regulations. 2. The quantity of the imports used in producing, mixing, assembling, or packing exports is in accordance with the rules approved or specified by Customs. 3. The goods are exported through a port or place of exit designated for a drawback scheme. 4. The goods are exported within one (1) year from the date of importation of the goods used in producing, mixing, assembling or packing exported goods. In case where there is a force majeure event that causes the delay of such exportation, Customs may extend the aforementioned period by six (6) months. 5. A claim for drawback must be made within six (6) months from the date of exportation of the goods. However, Customs may extend this time limit on a case by case basis. Eligible Goods for Duty Drawback 1. Raw materials which are obviously seen in the exports e.g. fabrics, buttons, zippers and thread in garments, plastic sheeting in plastic products, etc. 2. Raw materials used directly in the manufacturing process and contained in the exports but not obviously seen e.g. preservatives in canned food, stiffening agents in garments, solvents for glue in cellophane and anti-rust agents in electronic circuits, etc. 3. Raw materials required in the manufacturing process e.g. sizing materials and bleaching agents used in textile products, sand paper, scouring powder, varnish, velvet, scouring agents, chalk, carbon paper and pattern. Non Eligible Goods for Duty Drawback 1. Machinery, tools, moulds and various appliances e.g. grinding ball for ores, tools and appliances made from tungsten carbide used in the manufacturing of watches, etc. 2. Fuels for manufacturing e.g. fuel oil, firewood, coal, etc.

Q. Role of RBI in export promotion (May 08) – Vipul Pg 234-235 Q. What is special economic zone? How is it different from export processing zone? (May 06)
SEZ or Special Economic Zone is an area in a country that is selected by the government for its development. This area has economical laws completely different from the laws of the country. These laws are made in such a manner so that they are business friendly to
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attract people to set up manufacturing, trading or service establishments. The establishments in SEZ can be established by foreign or native investments and the products can be sent exported or sold within the country. EPZ or Export Processing Zone is just like SEZ whose economic laws are different from the laws of country but they are designed to help the manufacturing companies that are exporting their entire production. EPZ has the sole aim to produce goods for export. The manufacturing units are given tax holiday for a fixed period of time so as to make the product competitive in the international market. SEZ and EPZ were created by the governments of various countries with certain aims in mind like • To attract the foreign investment • Develop an area by raising infrastructure and providing jobs to the local population. • Promote the technology and create skilled man power. • To increase the economic growth of the country. However the limited success or failure in some countries of EPZ gave rise to the concept of SEZ. The multinational companies used EPZ to their great advantage by moving their establishments from country to country after the tax holiday ended. SEZ has much more flexibility and is much larger in size than EPZ and has proved successful in almost all countries. Differences between SEZ and EPZ • SEZ is much larger in geographical size than EPZ. • SEZ has much larger scope of business than EPZ. • SEZ is found all the countries but EPZ are generally located in under developed or developing countries. • Infrastructure of SEZ consist of manufacturing units, townships, roads, hospitals, schools and other services but EPZ are confined to manufacturing establishments. • The benefits of SEZ are more towards the growth of domestic business where as EPZ has the main objective of developing exports business. • SEZ is open to all fields of business like manufacturing, trading and services but EPZ has more focus on manufacturing. • Tax benefits in SEZ are much more than in EPZ. • There is very limited accountability of export performance in SEZ but it has great influence over the business carried out in EPZ as the penalties and duty recovery is imposed in case of shortfall.
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• The consumption of raw material that is imported duty free has to be consumed over a period of 5 years in SEZ but the time period in EPZ is only 1 year. • Laws concerning the certification of the import goods are much more relaxed in SEZ than in EPZ. • Custom department has less interference in the inspection of the premises in SEZ but EPZ requires routine customs inspection of cargo. • FDI investment in manufacturing unite does not require sanctions from the board as it is in EPZ.

Q. What is special economic zone? (S.N. – May 08; Nov 08) What are its advantages to the exporters? (Nov 06; May 09, 11, 12) Or Need and importance of SEZ (May 07) – Vipul Pg 247-248 Q. Different terms used in export-import pricing (Nov 07) – Vipul Pg 251-252 Q. What is foreign trade policy? What are the objectives of new foreign trade policy 2004-2009? (May 08) – Vipul Pg 237-238 Q. Role of DGFT (May 08) – Vipul Pg 236 Q. Future of SEZs (Oct 11) – Vipul Pg 247-248 (Any 8) ************************************************************ CHAPTER 12 – BALANCE OF PAYMENTS Q. What is BOT and BOP? Explain the importance of BOP. Which are the factors affecting BOP of a particular country? (Nov 08; April 12)
Balance of trade is the difference between a country's imports and its exports. Balance of trade is the largest component of a country's balance of payments. Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy. A country has a trade deficit if it imports more than it exports; the opposite scenario is a trade surplus. It is also referred to as "trade balance" or "international trade balance." Balance of payment is a statement that summarizes an economy’s transactions with the rest of the world for a specified time period. The balance of payments, also known as balance of international payments, encompasses all transactions between a country’s residents and its non-residents involving goods, services and income; financial claims on and liabilities to the rest of the world; and transfers such as gifts. The balance of payments classifies these transactions in two accounts – the current account and the
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capital account. The current account includes transactions in goods, services, investment income and current transfers, while the capital account mainly includes transactions in financial instruments. BOP has emerged as a major branch of economics in recent years. The developments in the BOP are of special concern to those interested in formulation of correct national economic policies. BOP is useful as a guide to the monetary, fiscal, trade and other policies. In order to increase the bank rate, the examination of BOP is required. The BOP also assists in assessing the country’s ability to pay for the current goods and services. The tax measure on export or imports may also affect the BOP. Factors that can affect the balance of trade include: 1. The cost of production (land, labour, capital, taxes, incentives, etc.) in the exporting economy vis-à-vis those in the importing economy; 2. The cost and availability of raw materials, intermediate goods and other inputs; 3. Exchange rate movements; 4. Multilateral, bilateral and unilateral taxes or restrictions on trade; 5. Non-tariff barriers such as environmental, health or safety standards; 6. The availability of adequate foreign exchange with which to pay for imports; and 7. Prices of goods manufactured at home (influenced by the responsiveness of supply)

Q. What is balance of trade? How is it different form balance of payments? (May 09)
Basis of Difference Balance of Trade (BOT) Balance of Payment (BOP) Balance of payment is flow of cash between domestic country and all other foreign countries. It includes not only import and export of goods and services but also includes financial capital transfer. BOP = BOT + (Net Earning on foreign investment - payment made to foreign investors) + Cash Transfer + Capital Account +or Balancing Item or BOP = Current Account + Capital Account + or - Balancing item ( Errors and omissions) Balance of Payment will be
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1. Definition

Balance of trade may be defined as difference between export and import of goods and services.

2. Formula

BOT = Net Earning on Export - Net payment for imports

3. Favourable

If export is more than

or Unfavourable

import, at that time, BOT will be favourable. If import is more than export, at that time, BOT will be unfavourable.

favourable, if you have surplus in current account for paying your all past loans in your capital account. Balance of payment will be unfavourable, if you have current account deficit and you took more loan from foreigners. After this, you have to pay high interest on extra loan and this will make your BOP unfavourable. To stop taking of loan from foreign countries.

4. Solution of Unfavourable Problem

To Buy goods and services from domestic country. Following are main factors which affect BOT a) cost of production b) availability of raw materials c) Exchange rate d) Prices of goods manufactured at home If you see RBI' Overall balance of payment report, it shows debit and credit of current account. Credit means total export of different goods and services and debit means total import of goods and services in current account.

5. Factors

Following are main factors which affect BOP a) Conditions of foreign lenders. b) Economic policy of Govt. c) all the factors of BOT

6. Meaning of Debit and Credit

Credit means to receipt and earning both current and capital account and debit means total outflow of cash both current and capital account and difference between debit and credit will be net balance of payment.

Q. Balance of Payment (S.N. – Oct 11) Q. Convertibility of Rupee (S.N. – May 08) – Vipul Pg 287-288 *************************************************

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