PPG BUSINESS SCHOOL

Coimbatore – 641 035

MODEL EXAMINATION – III SEMESTER

Batch: 2018-2020 Academic Year: 2019-2020

Max. Duration: 3 hours Max. Marks: 100
Subject Title: ITF Subject Code: BA5031
Date: 15.10.2019 Day: Friday
Part A

Answer all the Questions 10 x 2 = 20 marks

1. Two reasons for International trade

a. Reduced dependence on your local market
b. Increased productivity
2. Forfeiting
Forfeiting is a means of financing that enables exporters to receive immediate cash
by selling their medium and long-term receivables.
3. Exchange rate
An exchange rate is the value of a country's currency vs. that of another country
4. Balance of Trade
BOT is the difference in value between a country's imports and exports.
5. Forfeiting
Forfeiting is a means of financing that enables exporters to receive immediate cash
by selling their medium and long-term receivables.
6. PP form
PP form stands for Post Parcel Form. PP form is a declaration by exporter
mentioning the details of goods exporting through post office. These details includes
description of goods, value of goods, term of payment, terms of delivery, port of
loading, port of discharge, shipper details etc.
7. Methods of exchange control
 Intervention
  Entry Restrictions
 Blocked Accounts
 Multiple Exchange Rates
 Exchange Clearing Agreements
8. Types of export incentives
 Export Subsidies
 Direct Payments
 Low Cost Loans
 Tax Exemption on profits made from exports
 Government fiancé international advertising
9. Softex forms
Softex forms are the forms that must be filled by the exporter to export computer
software in non physical form. The exporter registered under STP, SEZ, EOU etc.
must file this softex forms and others should not file SOFTEX forms.
10. EPCG and DEPB.
EPCG (Export Promotion Capital Goods) scheme helps in facilitating the import of
capital goods without the payment of customs duty for manufacturing quality
goods.
Duty Entitlement Pass Book Scheme (DEPB) is an export incentive scheme of Indian
government provided to exporters in India. The scheme refunds duties that are paid
by the exporters in the form of credit.

Part – B
Answer all the Questions 5 x 13 = 65 marks
11. (a) Role of WTO in International Trade Finance
a. Administering trade agreements
b. Acting as a forum for trade negotiations
c. Settling trade disputes
d. Reviewing national trade policies
 e. Building the trade capacity of developing economies
f. Cooperating with other international organizations

(b) Salient features of India’s recent Exim Policy.

a. Two new schemes namely “Merchandise Export from India Schemes (MEIS)”
and “Service Exports from India Scheme (SEIS)” has been introduced replacing
multiple schemes existing earlier.
b. MEIS to promote export of notified goods to notified markets and SEIS for
benefit of all exporters in India.
c. Reduce export obligations by 25% and give boost to domestic manufacturing
supporting the “Make in India” concept.
d. Both MEIS and SEIS firm will get subsidized office spaces in SEZs, along with
other benefits.
e. As a step to Digital India concept, online procedure to upload digitally signed
document by CA/CS/Cost Accountant are developed and further mobile app
for filing tax, stamp duty has been developed.
f. Benefits of MEIS would be eligible for e-commerce of handicrafts, handlooms,
books etc. Exports up to 25000 per consignment will get SEIS benefit.
g. Duty Credit scrips to be freely transferable and usable for payments of custom
duty, excise duty and service tax.
h. Recognition of status holder has been changed from Rupees to US Dollars
earning. The position status holder will recognize and reward those
entrepreneurs who helped in India to become a major export player.
i. Manufacturers who are also status holders will be enable to self-certify their
manufactured goods as originating from India.
j. Repeatedly submission of physical copies of documents available on Exporter
Importer Profile is not required.
 k. Agricultural and village industry products to be supported across the globe at
rates of 3% and 5% under MEIS.
l. Export obligation period for export items related to defense, military store,
aerospace and nuclear energy to be 24 months. Certificate of independent
Chartered Engineer for redemption of EPGG authorization is no longer required.

12. (a) Balance of Trade and Balance of Payment.

Balance of Trade (BOT) Balance of Payment (BOP)

Balance of payment is flow of cash between domestic country

Balance of trade may be defined as
and all other foreign countries. It includes not only import and
difference between export and
export of goods and services but also includes financial capital
import of goods and services.
transfer.

BOT = Net Earning on

BOP = BOT + (Net Earning
Export - Net payment for imports
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)

If export is more than import, BOT

Balance of Payment will be favourable, if you have surplus in
will be favourable.
current account for paying all past loans in your capital
account.
If import is more than export, BOT
Balance of payment will be unfavourable, if you have current
will be unfavourable.
account deficit and you took more loan from foreigners. After
this, you have to pay high interest on extra loan

To buy goods and services

from domestic country.
Factors affect BOT
 Cost of production
 Availability of raw materials
 Exchange rate
 Prices of goods manufactured at
home
Credit means total export of
different goods and services
To stop taking of loan from foreign countries.
Factors affect BOP
 Conditions of foreign lenders.
 Economic policy of Govt.
 All the factors of BOT
Credit means to receipt and earning both current and capital
account
 Debit means total import of goods Debit means total outflow of cash both current and capital
and services in current account. account
Difference between debit and credit will be net balance of
payment.

Measures are taken to correct the imbalance

a. Monetary Policy
b. Exchange Depreciation
c. Devaluation
d. Exchange Control
e. Fiscal Policy- Import Duties
f. Import Policy
g. Stimulating/Improving Export
h. Foreign Loans
i. Encouragement to Foreign Investment
j. Incentives to Foreign Tourist
k. Automatic Measures

(b) ECGC and its Schemes in export and import finance.

The Export Credit Guarantee Corporation (ECGC) provides export credit insurance
support to Indian exporters and is controlled by the Ministry of Commerce. It is a
central government undertaking body to provide export credit guarantee/
insurance to the exporters in the case of the default of payments by the buyer.
1. Standard Policies
2. Specific Policies
a. Specific policy for Supply Contracts
 Specific Shipments (Comprehensive Risks) Policy
 Specific Shipments (Political Risks) Policy
 Specific Contracts (Comprehensive Risks) Policy
 Specific Contracts (Political Risks) Policy
 b. Service policy
 Specific Services (political risks) Policy
 Specific services (comprehensive risks) policy
c. Construction Works Policy
3. Special policies
4. Financial Guarantee
5. Special Schemes:
a. Transfer Guarantee
b. Overseas Investment Insurance
c. Exchange Fluctuation Risk

13. (a) Factors influencing the Exchange rates

 Government Intervention
 Inflation Rate
 Interest Rates
 Current Account
 Government Debt
 Speculation
 Political Stability

(b) FEMA, objective. Transition of FERA to FEMA took place.

The Foreign Exchange Management Act, 1999 is an Act of the Parliament of India "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.
 To utilize foreign exchange resource of the country effectively.
 It facilitates external trade, payment, orderly development & maintenance of
foreign exchange in India.
 It is applicable to all parts of India.
  It is also applicable to all branches, offices & agencies outside India owned or
controlled by a person who is a resident of India.
 It’s head office is known as Enforcement Directorate is situated in New Delhi &
headed by a Director.
 It is very important to a foreign trade & to maintain a good relation with other
countries.

14. (a) Important documents used in International Trade

 Bill of Exchange
 Bill of Lading
 Letter of Credit
 Certificate of origin of goods
 Inspection certificate
 Packing weight list
 Consular invoice
 Insurance document
 Purchase Order

(b) Official and risk covering documents used in International trade.

 Insurance Policy
 Insurance Cover note

15. (a) Export promotion scheme to exporters in India.

1. Exports from India Scheme
 Merchandise Exports from India Scheme (MEIS)
 Service Exports from India Scheme (SEIS)
2. Duty exemption & remission schemes
 Advance Authorization Scheme
 Advance Authorization for annual requirement
  Duty-Free Import Authorization (DFIA) Scheme
 Duty Drawback of Customs/Central Excise Duties/Service Tax
 Rebate of Service tax through all industry rates
3. EPCG SCHEME
 Zero duty EPCG scheme
 Post Export EPCG Duty Credit Scrip Scheme
4. EOU/EHTP/STP & BTP SCHEMES

(b) Roles of EPZ, EOUs and Export house.

EPZ:
 To encourage foreign direct investments in order to strengthen Indian
economy.
 To channelize the sources of foreign exchange within the economic system.
 To support the establishment and development of industrial enterprises within
the specified zones
 To promote economic growth by encouraging economic activities through
foreign investments for the development of the zones.
 To channelize the foreign exchange earnings for the further development of
these zones and explore new areas for the development of Indian exports
 To support the establishment and development of Indian industries and
business enterprises and facilitate with proper infrastructure.
 To create employment opportunities and thereby providing a solution to the
problem of unemployment.
 To upgrade labor and management skills in order to compete with
international firms.
 To acquire advanced technology for increased productivity and to improve
quality of products.
 To ensure world class quality of products in order to face stiff international
competition.
 EOUs
 To increase exports
 To earn foreign exchange to the country
 Transfer of latest technologies and stimulate direct foreign investment
 To generate additional employment.

Export house
 To represent the parent manufacturing company in the market where the
product is being exported.
 gathering market intelligence, competitive intelligence and the work of other
competitors in the market
 Handling Documents and procedures related to export.
 Market penetration in the target country
 Ensuring manpower for order management
 Handling finance and credit

Part – C
Answer all the Questions 1 x 15 = 15 marks
16. (a) Long run foreign exchange rate forecasting tools.
 Time Series Analysis
 Trend Following Behavior
 Purchasing Power Parity (PPP)
 International Parity Conditions
 Econometric Model

(b) International trades contribute to economic growth

a. The primary function of foreign trade is to explore means of procuring
imports of capital goods, without which no process of development can start.
b. International trade provides flow of technology which allows increase in
productivity and also results in short-term multiplier effect.
c. Foreign trade generates pressure for dynamic change through (a) competitive
pressure from imports, (b) pressure of competing export markets,- and (c) a
better allocation of resources;
d. Exports allow fuller utilisation of capacity resulting in achievement of
economies of scale with absorption of new technologies;
e. Foreign trade increases most workers’ welfare such as higher wages, gains
through products of imports, enables workers to become more productive
and technology transfers and demand for more skilled labour.
f. Increased trade has been strongly associated with reduction in poverty in
most developing countries.
g. Trade promotes growth enhancing economic welfare by stimulating more
efficient utilisation of factors.