56 CBSE Term-II Business Studies XI

International
Business
6. Cost of production differ in different countries due
PART 1 to …….. factor.
Objective Questions (a) Socio-economic
(c) Geographical
(b) Political
(d) All of these
Ans. (d) All of these
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Multiple Choice Questions
7. Labour, capital and ……. are the factors of
1. The basic problem faced by those engaged in production whose availability differs from country
international trade is ‘different countries have to country.
different currencies’. In order to resolve this issue, (a) Tools (b) Entrepreneurs
which currency is considered as the most popular (c) Raw material (d) All of these
currency in international trade? Ans. (c) Raw material
(a) US Dollars (b) UK Euro
(c) Japanese Yen (d) Indian Rupee
8. Which type of domestic markets drive companies
to go international in search of new markets for
Ans. (a) US Dollars
their products?
2. International trade requires movement of goods (a) Monopolistic markets
across the boundaries of a nation. Which of the (b) Highly competitive markets
following is the cheapest mode of transporting (c) Oligopoly
goods to longer distances? (d) Monopoly
(a) Road (b) Rail Ans. (b) Due to highly competitive domestic market, there is
(c) Ships (d) Air not much of a scope left for growth in the domestic
Ans. (c) Ships market. Therefore, many companies tend to go
international in search of new markets for their products.
3. International business involves ……… degree of
risk. 9. International trade should be done with extreme
(a) low caution as it may lead to …… use of natural
(b) moderate resources, which may make a country poor by
(c) high depleting its natural resources.
(d) Can’t be determined (a) extensive (b) intensive
Ans. (c) high (c) moderate (d) regressive
Ans. (b) International trade may make nations greedy for
4. In case of international business, there is a wide growth and development which may cause them to use
time gap between order and ….. of goods. their natural resources intensively. This makes nations
(a) demand (b) supply poor in the long run by depleting its natural resources.
(c) trade (d) exchange
Ans. (b) supply
10. International trade has its own advantages and
disadvantages. Which of the following is not an
5. The fundamental reason behind international area which puts international trade at
business is that the countries cannot produce all disadvantageous position?
the goods that they need, with respect to (a) Language
(a) quality (b) cost (b) Time involved
(c) Both (a) and (b) (d) None of these (c) Intensive use of natural resources
Ans. (c) Both (a) and (b) (d) Capacity utilisation
Ans. (d) Capacity utilisation
11. International trade is advantageous to l
Assertion–Reasoning MCQs
(a) nations (b) firms Directions (Q.Nos. 1-3) There are two statements marked as
(c) Both (a) and (b) (d) None of these Assertion (A) and Reason (R). Read the statements and choose
Ans. (c) Both (a) and (b) the appropriate option from the options given below.
12. Which of these is an advantage of international (a) Both Assertion (A) and Reason (R) are true and Reason
(R) is the correct explanation of Assertion (A).
business to the nation?
(b) Both Assertion (A) and Reason (R) are true, but Reason
(a) Better Utilisation of Resources (R) is the not the correct explanation of Assertion (A).
(b) Prospects for Higher Profits (c) Assertion (A) is false, but Reason (R) is true.
(c) Way Out to Intense Competition in Domestic Market (d) Assertion (A) is true, but Reason (R) is false.
(d) All of these
Ans. (a) Better Utilisation of Resources
1. Assertion (A) International trade helps in speeding
up the industrialisation of a country.
13. Statement I The degree of mobility of factors of Reason (R) Developing countries export scarce raw
production like labour and capital across nations is materials and capital goods and advanced
relatively less. technology required for rapid industrial
Statement II Domestic markets are relatively less development.
homogeneous in nature as compared to Ans. (d) Developing countries import scarce raw materials and
international markets. capital goods and advanced technology required for rapid
Alternatives industrial development.
(a) Statement I is correct and Statement II is wrong 2. Assertion (A) International trade helps people to
(b) Statement II is correct and Statement I is wrong improve their standard of living.
(c) Both the statements are correct
(d) Both the statements are incorrect Reason (R) International trade helps people of a
country to have access to a large variety of goods
Ans. (a) Domestic markets are relatively more homogeneous
in nature as compared to international markets. and services.
Ans. (a) Both Assertion (A) and Reason (R) are true and Reason
14. Statement I In international business, there is use (R) is the correct explanation of Assertion (A).
of domestic currency.
3. Assertion (A) Imports enable the country to ensure
Statement II Business systems and practices vary its sovereignty and territorial integrity.
considerably across countries. Reason (R) A country can import food grains and
Alternatives other essential commodities to prevent starvation.
(a) Statement I is correct and Statement II is wrong
Ans. (d) Countries import equipment for its armed forces–
(b) Statement II is correct and Statement I is wrong Army, Air Force and Navy which enable them to ensure
(c) Both the statements are correct sovereignty and territorial integrity.
(d) Both the statements are incorrect
Ans. (b) In international business, there is use of foreign l
Case Based MCQs
currencies.
1. Direction Read the following text and answer
15. Statement I A large number of domestic firms in question no. (i) to (vi) on the basis of the same.
India found it very difficult to compete in the Aman Woollen Ltd. a leading woollen items
world market. manufacturing company established 20 years ago by
Statement II In International business, various Aman, is well-known for its quality goods and
other stakeholders such as suppliers, employees, consumers have high brand loyalty for its products
middlemen, shareholders and partners are from especially shawls. The company was doing very well
different nations. but due to riots, terrorism, unrest in the area for
Alternatives past 10 years their sales are consistently slashing
(a) Statement I is correct and Statement II is wrong down. To solve this problem, the marketing manager
(b) Statement II is correct and Statement I is wrong of the company suggested to explore the possibility
(c) Both the statements are correct of going international and to appoint wholesalers
(d) Both the statements are incorrect country wide. The financial manager supported his
Ans. (c) Both the statements are correct suggestion and informed that government is also
providing subsidies and technical and marketing
 support to such export-oriented industries as (vi) Which benefit of international trade to firm is
international trade offers many benefits to the highlighted in the line, “They also believe that in
nation. They also believe that in other countries other countries they would be able to charge more
they would be able to charge more price than they price than they are currently charging. This will
are currently charging. This will lead to better lead to better business strength”?
business strength. (a) Improved Business Vision
(b) Increased Capacity Utilisation
(i) Which of the following is not the benefit of foreign
(c) Prospects for Growth
trade to a nation?
(d) Prospects for Higher Profits
(a) Economic growth
Ans. (d) Prospects for Higher Profits
(b) Earning of foreign exchange
(c) Higher profits 2. Direction Read the following text and answer
(d) Price stability question no. (i) to (vi) on the basis of the same.
Ans. (d) Price stability When the Indian economy opened in 1991, Harsha
(ii) A wholesaler helps a manufacturer to enjoy decided to take advantage of the same and start a
economies of scale by business at an international level. He is very good
(a) providing him market information in making paper crafts and decided to monetise the
(b) providing orders same. He made lot of such crafts and sold them in
(c) bearing risk the foreign countries. He hired few like-minded
(d) providing financial support people and started a small firm.
Ans. (b) providing orders By following the same practice of selling
(iii) International trade offers many benefits to the high-quality paper crafts in international markets,
nation, one such benefit is that it provides a way the firm earned lot of revenue. Firm started to cater
out to intense competition in domestic market, to more clients and at a larger level production,
which implies costs declined.
(a) winding up internal business People in other countries who would like these
(b) doing international business kinds of products but can’t purchase due to
(c) doing technological upgradation unavailability are also helped by this kind of
(d) promotion of goods and services trade.
Ans. (b) doing international business These people will have access to these products
(iv) International business includes which among the and can use for their home décor and even to ease
following? out some of their tasks. This practice of selling in
(a) Merchandise and service exports and imports foreign market further helped the firm to increase
(b) Licensing and franchising the business when the domestic. In the process, the
(c) Foreign investments firm also achieved maximum utilization of the
(d) All of the above human resources and other small machines who
Ans. (d) All of the above
earlier used to be working at below maximum
production levels.
(v) In international trade, when prices in the domestic
market are low, firms cannot earn more profits by (i) Which advantage of international trade (to nation)
selling their products in those countries in which is highlighted in the line, “He hired few
prices are high. like-minded people and started a small firm.”?
(a) True (b) False (a) Earning of foreign exchange
(c) Partially true (d) None of these (b) Better utilisation of resources
Ans. (b) When prices in the domestic market are low, firms (c) Improving growth prospects and employment potential
can earn more profits by selling their products in those (d) Increased standard of living
countries in which prices are high. This is one of the Ans. (c) Improving growth prospects and employment
benefits of international trade to the firms. potential
(ii) Which advantage of international trade (to firms) is
highlighted in the line, “By following the same
practice of selling high-quality paper crafts in
PART 2
international markets, the firm earned lot of
revenue.”?
Subjective Questions
(a) Prospects for higher profits
(b) Way out to intense competition in domestic market
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Short Answer (SA) Type Questions
(c) Increased capacity utilisation 1. What do you mean by international trade? Explain
(d) Improved business vision in brief. Also, how are transactions related to
Ans. (a) Prospects for higher profits international trade settled?
(iii) Which advantage of international trade (to nation) Ans. International trade is the component of international
is highlighted in the line, “People in other business. It comprises of buying and selling of goods and
services beyond the geographical borders of the country.
countries who would like these kinds of products
It involves not only the international movement of goods
but can’t purchase due to unavailability are also and services, but also of capital, personnel, technology
helped by this kind of trade.”? and intellectual property like patents, trademarks,
(a) Speed-up industrialisation copyright, etc. It is also referred to as ‘foreign trade’ or
(b) Meet consumer demand ‘external trade’. It can also be understood as exchange of
(c) Overcome famine goods and services between residents of different
(d) Ensure national defense countries. It involves the use of foreign exchange to
Ans. (b) Meet consumer demand discharge trade obligations and settle the transactions.
(iv) Which advantage of international business (to 2. Patel Ltd. is a reputed company in the field of
nations) is highlighted in the line, “These people garments manufacturing in India. The company
will have access to these products and can use for manufactures superior quality products. But the
their home décor and even to ease out some of management is worried about its future prospects.
their tasks.”? The company is facing certain problems
(a) Earning of foreign exchange (a) The domestic prices of its garments are low.
(b) Better utilisation of resources (b) Under-utilisation of capacity.
(c) Improving growth prospects and employment (c) Demand for garments is saturated in domestic
potential market.
(d) Increased standard of living
A meeting is called by the BoD to discuss the matter.
Ans. (b) Increased standard of living The members arrived at a conclusion that
(v) Which advantage of international business (to firm) internationalisation of business is the final solution to
is highlighted in the line, “This practice of selling the problems faced by the company. Such internation-
in foreign market further helped the firm to alisation will result in the benefits to the company.
increase the business when the domestic.”? The company believes in assuming social
(a) Prospects for higher profits responsibility. Hence, it also favoured
(b) Increased capacity utilisation ‘internationalisation of business’ as it will also lead
(c) Prospects for growth to benefits for the question’s nation. On the basis of
(d) Improved business vision above case, answer the following questions
Ans. (c) Prospects for growth (i) Define international business.
(vi) Which advantage of international business (to firm) (ii) Write any one benefit of international business
is highlighted in the line, “In the process, the firm each to the nation and firm.
also achieved maximum utilisation of the human Ans. (i) Manufacturing and trading beyond the boundaries of
resources and other small machines who earlier one’s own country is known as international or
used to be working at below maximum production external business.
levels.”? (ii) One benefit of international business to the nation is
(a) Prospects for higher profits Earning of Foreign Exchange International
(b) Increased capacity utilisation business helps a country to earn foreign exchange
(c) Prospects for growth which can be used to import capital goods,
(d) Improved business vision technology, petroleum products, etc. which are not
available in the country or are relatively costlier if
Ans. (b) Increased capacity utilisation
produced domestically.
 One benefit of international business to the firm is Basis Domestic Business International Business
Higher Profits Generally, international business is
more beneficial than the domestic business. When Political Domestic business is Different countries have
System and subject to political different forms of
the domestic prices are not satisfactory, business
Risks system and risks of political systems and
firms can earn more profits by selling their products one single country. different degrees of risks
in the international markets where prices are higher. which often become a
3. Foreign trade does not only help the barrier to international
business.
macroeconomic variables and national economies
at large but also firms importing and exporting Business Domestic business is International business
goods and services. With reference to the Regulations subject to rules, laws transactions are subject
and Policies and policies, taxation to rules, laws and
statement, explain the benefits of international system, etc., of a policies, tariffs and
trade to the firms. single country. quotas, etc. of multiple
Ans. Following are the benefits of international trade to the firms countries.
(i) Improved Business Vision Most enterprises have an
urge to grow, to become more competitive, to l
Long Answer (LA) Type Questions
diversify and derive the benefits of going global
through international trade. 1. What are the reasons for growing popularity of
(ii) Prospects for Growth When the domestic demand international trade in the modern times?
for a firm’s products or services start getting Ans. The reasons for the growing popularity of international
saturated in the domestic market, then firms can trade are
considerably improve prospects of their growth by (i) Natural Resources are Unevenly Distributed The
venturing out in the international market. natural resources are unevenly distributed
(iii) Way Out to Intense Competition in Domestic throughout the world. Some countries are rich in
Market Highly competitive domestic market drives certain resources while other countries in certain
many companies to go international in search of other resources. The countries produce goods
markets for their products. according to the availability of naturally occurring
(iv) Increased Capacity Utilisation Many business and resources and then sell these to other countries.
industrial enterprises have unused capacity, that can They also buy the goods produced by some other
be efficiently utilised for further production. Thus, country, as per their need.
surplus production can be used to generate extra (ii) Availability of Factors of Production Factors of
profits from foreign trade. production, viz. land, labour and capital differ from
country to country. Because of this, different
4. Differentiate between domestic and international countries produce different goods and then trade
business on the following basis amongst themselves.
(i) Nationality of buyers and sellers (iii) Specialisation Certain countries specialise in the
(ii) Nationality of other shareholders production of certain specific goods. e.g., India
(iii) Political system and risks specialises in the production of handicrafts. So,
(iv) Business regulations and policies handicraft goods are exported from India.
Ans. Difference between Domestic and International Business (iv) Cost Benefits The cost of production of goods and
services differ from country to country due to
Basis Domestic Business International Business difference in geographical, socio-economical and
Nationality People or People or organisations political environment. Some countries can produce
of Buyers organisations from of different countries goods economically as compared to other countries,
and Sellers one nation participate in thus leading to international trade. For example,
participate in international business China can produce electronic goods cheaply.
domestic business transactions. Because of this, other countries import electronic
transactions. goods from China.
Nationality Various other Various other 2. International business has entered into a new era
of other stakeholders such as stakeholders such as of reforms. India too did not remain cut-off from
Stakeholders suppliers, employees, suppliers, employees,
middlemen, middlemen,
these developments. India was under a severe debt
shareholders and shareholders and trap and was facing crippling balance of payment
partners are usually partners are from crisis. In 1991, it approached the International
citizens of the same different nations. Monetary Fund (IMF) for raising funds to tide over
country. its balance of payment deficits. IMF agreed to lend
 money to India subject to the condition that India Ans. (i) Globalisation means integration of the economy of
would undergo structural changes to be able to the country with the world economy.
ensure repayment of borrowed funds. India had no Liberalisation means freedom from government
alternative but to agree to the proposal. It was the regulations in a country to allow for private sector
very conditions imposed by IMF which more or companies to operate business transactions with
less forced India to liberalise its economic policies. fewer restrictions.
Since then a fairly large amount of liberalisation at (ii) Yes, I think that encouraging international trade is
the economic front has taken place. Though the beneficial for the country. It provides following
process or reforms have somewhat slowed down, benefits to a nation
India is very much on the path to globalisation and (a) Earning of Foreign Exchange International trade
helps countries to earn foreign exchange. This helps
integrating with the world economy. a country to import those goods and services which
While, on the one hand, many Multinational it cannot produce efficiently.
Corporations (MNCs) have ventured into Indian (b) Better Utilisation of Resources Since, countries tend
market for selling their products and services. to produce goods in which they have a comparative
Many Indian companies too have stepped out of advantage, wasteful duplication of resources is
the country to market their products and services prevented and they end up producing more.
to consumers in foreign countries. (c) Improving Growth Prospects and Employment
Potential Many countries follow the principle
(i) As per the given case, what do you understand ‘export and flourish’ and improve their growth
by ‘globalisation’ and ‘liberalisation’? prospects, thereby, creating employment
(ii) IMF forced India to make structural changes so opportunities for their citizens.
that international trade is encouraged. Do you (d) Increased Standard of Living International trade
helps people of a country to have access to a large
think that encouraging international trade is
variety of goods and services. This helps them to
good for the country? (NCERT) improve their standard of living.
Chapter Test
Multiple Choice Questions
1. Many countries follow the principle ……. and improve their growth prospects, thereby, creating employment
opportunities for their citizens.
(a) import and earn (b) export and earn (c) import and flourish (d) export and flourish
2. Pick the odd one out
(a) International trade (b) Import trade (c) Foreign trade (d) External trade
3. In International business, the degree of mobility of factors of production like labour and capital across nations is
relatively ….. .
(a) equal (b) less (d) high (d) can’t be determined
4. Statement I Countries exchange their surplus production with goods that they are in excess supply in their country.
Statement II Companies engage in international business so as to import available resources from other countries at
higher prices and export goods on which they can fetch better prices.
Alternatives
(a) Statement I is correct and Statement II is wrong (b) Statement II is correct and Statement I is wrong
(c) Both the statements are correct (d) Both the statements are incorrect

Short Answer (SA) Type Questions

1. How does international trade help in stabilising the prices of a product?
2. How does international trade help nations to improve on economic variables such as employment, foreign exchange
and efficient utilisation of resources?
3. Tourism and transportation have emerged as major components of international trade in services. Most of the airlines,
shipping companies, travel agencies and hotels get their major share of revenues from their overseas customers and
operations abroad. Several countries have come to heavily depend on services as an important source of foreign
exchange earnings and employment. India, for example, earns a sizeable amount of foreign exchange from exports of
services related to travel and tourism.
Business services When one country provides services to other country and in the process earns foreign exchange, this
is also treated as a form of international business activity. Fee received for services like banking, insurance, rentals,
engineering and management services form part of country’s foreign exchange earnings. Undertaking of construction
projects in foreign countries is also an example of export of business services. The other examples of such services
include overseas management contracts where arrangements are made by one company of a country which provides
personnel to perform general or specialised management functions for another company in a foreign country in lieu of
the other country. (NCERT)
(i) Is international trade related to only goods?
(ii) Enumerate the different services which are traded internationally.
4. Mention any four points that differentiate domestic business from international business.
Long Answer (LA) Type Questions
1. What do you mean by International trade? How does it help the firms?
2. International trade helps the world at a larger level. For instance, country X produces certain grains more than anywhere
else in the world because of nutrients present in its soil. It produces so much that even after self-consumption in
country, they have some quantity left so they export to countries where there is shortage of those grains. This also
helps in creating harmony and cooperation between the countries. With increasing demand for these high-quality
grains all over the world, the country started to produce at larger level by making utilisation of resources better.
Consequently, lot of people got involved in production and export of such grains leading to overall prosperity levels in
the country.
Identify and state the objectives of international trade highlighted in the passage by quoting the lines.

Answers
Multiple Choice Questions
1. (d) 2. (b) 3. (b) 4. (d)