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Students can Download Commerce Chapter 28 Balance of Trade and Balance of Payments Questions and Answers, Notes Pdf, Samacheer Kalvi 11th Commerce Book Solutions Guide Pdf helps you to revise the complete Tamilnadu State Board New Syllabus and score more marks in your examinations.

Samacheer Kalvi 11th Commerce Solutions Chapter 28 Balance of Trade and Balance of Payments

Samacheer Kalvi 11th Commerce Balance of Trade and Balance of Payments Textbook Exercise Questions and Answers

I. Choose the Correct Answer

Question 1.
The Statement which discloses a record of transactions between the residents of one country and residents of foreign country …………….
(a) Balance of Payment
(b) Balance of Trade
(c) Statement of Receipts and Payments
(d) Accounting Statement
Answer:
(a) Balance of Payment

Question 2.
The Balance of Payments councils consists of …………….
(a) Current Account
(b) Capital Account
(c) Receipts and Payments Account
(d) Both Current Account and Capital Account
Answer:
(d) Both Current Account and Capital Account

Question 3.
Foreign capital long – term loan and foreign currency reserve are recorded under …………….
(a) Official Capital
(b) Private Capital
(c) Banking Capital
(d) Both Private and Official Capital
Answer:
(b) Private Capital

Question 4.
The term official capital includes …………….
(a) RBI holdings of foreign currencies
(b) Special Drawing Rights held by the Government
(c) Both A and B
(d) Foreign Investment
Answer:
(c) Both A and B

Question 5.
Balance of payments surplus indicates …………….
(a) Exports are more than the Imports
(b) Imports are more than Exports
(c) Exports and Imports are at Equilibrium
(d) Exports and Imports are above Equilibrium
Answer:
(a) Exports are more than the Imports

II. Very Short Answer Questions

Question 1.
What do you mean by Balance of payments?
Answer:
Balance of payment refers to a systematic record of all economic transactions between the residents of one country and the residents of foreign countries during a particular period of time. For example, one year.

Question 2.
What do you mean by Balance of trade?
Answer:
Balance of trade denotes the difference between the value of import and the value of export during a year.

Question 3.
Define the Balance of payments.
Answer:
According to International Monetary Fund, “The balance of payments for a given period is a systematic record of all economic transactions taken place during the period between residents of the reporting countries.”

Question 4.
What is the composition of private capital?
Answer:
Private capital consists of foreign investments, long-term loan,s and foreign currency deposits.

Question 5.
Mention the components of banking capital.
Answer:
Banking capital includes movement into external financial assets and liabilities commercial and co-operative banks authorized to dealing in foreign exchange.

Question 6.
Mention the components of official capital.
Answer:
It includes RBI’s holdings of foreign currency and special drawing rights (SDR) held by the Government.

III. Short Answer Questions

Question 1.
Why is the Balance of payment prepared?
Answer:
Balance of payment is the principal tool for analyzing the monetary position of international trade of a country just like Receipts and Payments account of enterprise revealing the net effect of cash movements happening in an enterprise during a particular period.

Balance of payments help in framing monetary, fiscal, and trade policies of the country. It reveals whether a country produces enough economic output to pay for its growth. It is reported either for every quarter or for a year.

Question 2.
What does the Balance of payment disclose?
Answer:
A Balance of Payment surplus indicates that country’s exports are more than its imports and its government and residents are savers. A Balance of Payment deficit points to the fact that the country’s import is more than the export. This situation forces the country to borrow from other countries to pay for its imports.

Question 3.
What are the credit items shown in currents accounts?
Answer:
In the current account the following credit items have been shown:
1. Goods Export(visible)
2. Invisible-Exports

• Transport service sold abroad
• Banking service sold abroad
• Insurance service sold abroad
• Income received on loan and investments made in foreign countries.
• Expenses incurred by foreign tourists in India

Question 4.
State the components of capital account.
Answer:
Capital account consists of three components

1. Private Capital
2. Banking Capital
3. Official Capital

IV. Long Answer Questions

Question 1.
Write down the structure of the capital account.
Answer:
The capital account consists of three components

1. Private Capital: Private capital consists of foreign investments, long term loan, and foreign currency deposits
2. Banking Capital: Banking capital includes movement into external financial assets and liabilities commercial and co-operative banks authorized to dealing in foreign exchange.
3. Official Capital: It includes RBI’s holdings of foreign currency and special drawing rights (SDR) held by the Government.

Question 2.
Distinguish balance of payment and balance of trade.
Answer:

Question 3.
Highlight the features of the balance of trade.
Answer:
Meaning: Balance of Trade denotes the difference between the value of import and the value of export during a year.

Features of Balance of Trade:

• It is a statement showing the net effect of the export and import of a country.
• It records only transactions relating to merchandise.
• It does not record capital transactions
• It is a part of the current account of Balance of Payment.
• It may be at favourable or unfavourable or in an equilibrium state.
• It is not the true indicator of economic prosperity or economic relations of a country.
• Unfavourable balance of trade can be converted into favourable balance of payment.

For Future Learning

Question a.
Impact of Balance of Payments and Trade.
Answer:
The global village is also a term to express the constituting relationship between economics and other social sciences throughout the world making it a part of our popular culture before it actually happened.

Question b.
Necessary for Global Village concept.
Answer:
The current account, capital account, and financial account together make up the overall balance of payments, which accounts for all of the international inflows and outflows for a given Nation. The current account, as mentioned, capture the balance of trade meaning the purchases and sale of goods and services.

For Own Thinking

Question a.
Balance of Payment is key to economic development.
Answer:
Yes, it is correct.

Question b.
Importance of BOP and BOT.
Answer:
BOP:

1. It presents the international financial positions of the country.
2. It helps the government in taking decisions on monetary and fiscal policies on the one hand and on external trade and payments issued on the other.

BOT:

1. It is the difference between a country’s imports and export over a period of time.
2. It is the largest component of the balance of payments for all nations.

Students can Download English Lesson 5 The Singing Lesson Questions and Answers, Summary, Activity, Notes, Samacheer Kalvi 11th English Book Solutions Guide Pdf helps you to revise the complete Tamilnadu State Board New Syllabus and score more marks in your examinations. Learn the Samacheer Kalvi 11th English Grammar to enhance your grammar skills like reading comprehension, passage writing, parts of speech, tenses, passive and active voice, and many other concepts in no time.

Tamilnadu Samacheer Kalvi 11th English Solutions Supplementary Chapter 5 The Singing Lesson

Warm up

Question 1.
What are all the factors that influence our moods?
Human beings are bundles of emotions, A small angry look from a friend, a scolding from a teacher one admires, a taunt from mom could influence our moods the whole day.

Question 2.
How do you behave under the spells of different moods?
Answer:
When good things keep happening, we are happy. If we don’t get an easy question paper or the expected questions don’t appear we feel quite upset. If a close friend becomes angry, instead of analysing what caused it, we feel dejected. When centum is the goal, even 99% of marks disappoints us.

Question 3.
Do you think it is important not to be swayed by every passing mood?
Answer:
Yes, we should not be swayed by every passing emotions. But we are the sum total of our experiences. What ever bitter sweet experiences that occur do influence us. Latest researches . say that the food we eat, weather, clothes, the colour around us and punishing work schedules can adversely affect our moods. It would be ideal if we don’t allow external circumstances to influence our equanimity of mind and the ability to stay focused on our goals.

Question 4.
Suggest some ways by which we can maintain a calm temperament under all circumstances.
Answer:
Early morning walks, meditation and the practice of treating both success and failure, joy and sorrow with the same composure will naturally increase our life span on this planet. Listening to good music and reading good books, not only text books, can drastically reduce unpleasant stress. Thus we can maintain a calm temperament at all occasions.

Samacheer Kalvi 11th English The Singing Lesson Textual Questions

A. Based on your understanding of the story, answer the following questions in about 30 – 50 words each.

Question 1.
What was the knife that Miss Meadows carried with her?
Answer:
Miss. Meadows had received a letter from Mr. Basil calling off the marriage. She deemed it a kind of personal failure. Her anger and disappointed became despair. She carried cold despair buried deep in her heart like a wicked knife.

Question 2.
What kind of relationship existed between Miss Meadows and the Science Mistress?
Answer:
Both hated each other. Science Miss gave her a “Sugary smile” concealing her hostility. But Miss. Meadows enquiries responded to her deception always with a cold grimace.

Question 3.
Why was Miss Meadows upset and dejected?
Answer:
Mr. Basil had written a disquieting letter after his engagement with her. He had claimed that he was not a “Marrying man”. The thought of marriage gave him a feeling of disgust. He had struck out the word disgust and replaced it with ‘regret’ to lessen the hurt. So, Miss. Meadows was upset and dejected.

Question 4.
How would Miss Meadows usually treat Mary? How did her behaviour towards the girl change that day?
Answer:
Usually she would receive the flower from her favourite pupil Mary Beazley. She would tuck it in her belt with great tenderness and give a smile to her. The music class would start with a joyful note.

Question 5.
Why had Miss Meadows chosen ‘A Lament’ as the lesson that particular day?
Answer:
Miss. Meadows had chosen “A lament” as a lesson for that particular day. She was only in a mood to lament her broken engagement and shattered dreams. The choice of the music lesson reflected her real mood of dejection and despondency.

Question 6.
What brought agony to the girls during the music lessons?
Answer:
During the music lesson, Miss. Meadows did not show any warmth. She was icy cold and mechanical in her instructions. Children could easily realize that Miss. Meadow was in a wax. Miss. Meadow totally ignored the chrysanthemum from her favourite pupil. She also did not respond to her greeting. This sent tremors across the class. Young ones quickly understood the unstated message that music Miss was in one of her worst moods confirming their guess, she gave them “a lament” to practice.

The lesson was devoid of any warmth and joy. The lyrics of the song was so gloomy that children entered the world of unnatural agony and despair.

Question 7.
Bring out the substance of Basil’s letter to Miss Meadows.
Answer:
The content of Basil’s letter read, “I feel more and more strongly that our marriage would be a mistake. Not that I don’t love you. I love you as much as it is possible for me to love any woman but, truth to tell, I have come to the conclusion that I am not a marrying man and the idea of settling down fills me with nothing but – the word “disgust” was scratched out and “regret” written over the top.

Question 8.
Why did Miss. Wyatt summon Miss. Meadows to her room?
Answer:
A telegram addressed to Miss. Meadows was received at the school’s office. The Head mistress could not fathom the content of the Telegram. Believing that the telegram must be a harbinger of a tragedy, the Headniistress Miss. Wyatt summoned Miss. Meadows to her room.

Question 9.
How did Miss. Meadows express her joy, when she returned to the music class?
Answer:
Miss. Meadows changed the song for the children. She asked them to sing a joyful song beginning with flowers o’er laden. When she found that some children were still stuck up in the despondent mood, she reprimanded them. She told the girls, don’t look so doleful. It ought to sound warm, joyful and eager. And this time Miss. Meadow’s voice dominated the voices of all the little angels in her classroom. It was deep and glowing with a cheerful expression.

Question 10.
Briefly explain the cause of Miss Meadows’ joy at the end.
Answer:
Contrary to the expectation of Miss. Wyatt, the telegram was from Basil. It was an apology and reconciliatory in nature. In the telegram, her fiance had asked her to ignore the letter written when he must have been mad. A few hours before, she was the embodiment of disappointment and self-pity. The telegram had restored her joy. She could gather the pieces of her shattered dreams and hopes and built them anew. She was so happy that Miss. Wyatt’s warnings fell into deaf ears.

Vocabulary

A. Note the following words from the story. They all refer to different ways of walking. Find out their meanings and use each of them in meaningful sentences of your own. Refer a thesaurus and add a few more to the list.

(a) trod (b) fluttered (c) hurried (d) skipped (e) strode (f) sped

(a) trod – walked, stepped, strode, went
(b) fluttered – hovered, danced, flitted, flapped, oscillated, twitched, vibrated, flickered
(c) hurried – went fast, hastened, sped, charged, sprinted, chased, scampered, galloped, scrambled.
(d) skipped – capered, bobbed, bounded, jumped, leapt, gambolled,’frisked, romped
(e) strode – marched, trod, paced, stalked, dashed, ran, flaunted, joggled, tramped, rushed,zoomed
(f) sped – hurried, rushed, zipped, spurred, hurtled, sailed, hastened, quickened

B. Complete the mind map given below and write a brief summary of the story in your own words.

Answer:

(i) a letter from Basil breaking the engagement
(ii) irritable
(iii) sing a lament
(iv) Basil as a knife piercing her heart
(v) deserted her
(vi) of mpod
(vii) Head mistress Miss. Wyatt
(viii) the letter

A brief summary:
Miss Meadows was upset over a letter from Basil breaking the engagement. She remains gloomy and irritable in class. She taxes the students making them sing a lament. She thinks of the letter from Basil as a knife piercing her heart. Basil seems to have deserted her. Suddenly she is called by Head mistress Miss. Wyatt. The headmistress gives her a telegram which asks her to forget the letter. Miss Meadows feels happy and returns to the class with vigour and good cheer.

C. Answer the following questions in a paragraph of about 150 words each.

Question 1.
Describe Miss Meadows’ mood before and after receiving the telegram. How did it affect her class?
Answer:
A despairing singing teacher, Miss Meadow has to start her class, but she has just received a letter from her fiance, Basil This letter makes her that their relationship was ended. As she entered the class, she doesn’t answer the girl’s greeting. Mary’s eyes get filled with tears. The teacher orders the girls to sing a ‘lament.

They sing with ‘mournful voices. The teacher contaminates them with her state of spirit. Soon a telegram -from Basil was sent to Miss Meadows, asking her to apologize him. The teacher comes back to the class smiling and asks the students to sing another song, happy and sweet without explanations as if nothing had happened.

Question 2.
‘The only difference between a good day and a bad day is your attitude.’Relate this to a real life experience you have had. Share your thoughts in class.
Answer:
It is true that attitude makes or mars things. I was waiting for my Std X public exam resuls. I had put in 10 hours of work everyday. I was an average boy but I hoped to join the top five any time. The results were scheduled to be out the next morning. I have no internet connectivity at home. But one of my friends had it. His name is Murali. His father had come to my home. When I was out, he had told my parents I had failed in one subject. When I returned home, I found both my parents upset. I asked them what was wrong. They said it was a bad day. I asked them to tell me what was in their mind. They asked me to take things as they come by.

I didn’t understand. My dad told philosophically that failure is a stepping stone to success. Still they were not open with me. When I went out for tea, the local newspapers carried Std X public exam results. To my joy, I had passed with a first class. When I broke the news, my parents disclosed what had upset them. If they had just not reacted to the wrong information, their natural joy would not have been robbed. Now that they knew the information, they were over joyed. I just wondered at the human capacity to go down in misery and bounce back to extreme joy just by a turn of events. The best course of action to be happy all the time would be to. retain the key to our happiness and never give up on our joy to any external event.

“Don’t take it on yourself to repay a wrong. Trust the Lord and He will make it right.”

Question 3.
You are busy getting ready for school. You receive a WhatsApp message from your best friend, saying that he/she is very upset over the fight you had yesterday and doesn’t want to talk to you anymore. This distresses you as she sounds very firm. However, today is a big day at school with two tests lined up. What will be your state of mind? How will you handle this situation?
Answer:
My best friend is my soul mate If he/she fought with me I couldn’t concentrate on my work peacefully I will give more importance to my friends as my family. If we got misunderstanding surely the day will be the worst day for me. Because I can’t be happy without my friend One day, I had a misunderstanding with my friend. The very next day, there were two tests in my school.

My mind was totally blank. I couldn’t remember a sentence to write. I kept on thinking about the fighting which was unforgettable. Even, very known answers were not written properly I tried to overcome my emotions. At last, I decided to reconcile with my friend by taking him/her to an ice cream parlour. However, I did my tests very well.

Additional Question

Question 1.
Attempt a character sketch of Miss. Meadows.
Answer:
Miss. Meadows is a 30-year-old lady. Mr. Basil a 25-year-old young man gets engaged to her. When she is cherishing the dreams of a happy married life, a letter lands on her heart like a bombshell. It shatters her dreams. It pierces her heart. Being a sensitive lady, she feels her heart is bleeding. The contents of the letter keep haunting her memory. She is unable to focus in her music classes. The miraculous engagement was almost broken. The words, “our marriage could be a mistake” leaves her bleeding. She interpreted the scornful glance of science miss . as if she had known about the “break”. He had mentioned that he was not a marrying man”.

She wondered how she would react to the disclosure of the shattered engagement to the colleagues and the villagers. She even harboured the idea of leaving her job and go into hiding somewhere. As she is in a glooming mood, she doesn’t respond to the offer of chrysanthemum with a warm smile and thanks. She gives a ‘lament’ for practice. It is only when she receives a telegram of apology from her fiance her mood gets lifted. She flits on the wings of hope and sings a joyous song along with her students. She is a perfect example of ordinary mortals who are early hurt and quickly bounce back to a hopeful life as well.

“Please don’t expect me to always be good, kind, and loving. There are times when I will be cold, thoughtless, and hard to understand.”

Additional Questions

I. Answer the following choices from the options given below.

Question 1.
Miss. Meadows hugging the __________ stared in hatred at the science mistress.
(a) baton
(b) books
(c) bite
(d) knife
Answer:
(d) knife

Question 2.
Everything about Miss. Meadows was sweet, pale like __________
(a) money
(b) honey
(c) flower
(d) rose
Answer:
(b) honey

Question 3.
Science mistress was good at showing a __________ smile whenever she came across Miss. Meadows.
(a) honey
(b) sugary
(c) feigned
(d) deceptive
Answer:
(b) sugary

Question 4.
The story is set in __________ season.
(a) winter
(b) spring
(c) autumn
(d) rainy
Answer:
(c) autumn

Question 5.
One could witness an excitement in the school __________
(a) drowsy
(b) insipid
(c) gleeful
(d) sensational
Answer:
(c) gleeful

Question 6.
Every day the presentation of a beautiful flower to Miss. Meadows by __________ her favourite has pupil become a ritual.
(a) Muriel
(b) Mr. Basil
(c) Rosy
(d) Mary Beazley
Answer:
(d) Mary Beazley

Question 7.
The little children in the music were thinking __________ is in a wax.
(a) Rowdy
(b) Meady
(c) Rosy
(d) Miss. Wyatt
Answer:
(b) Meady

Question 8.
The letter from Mr. Basil had __________ Miss. Meadows’s heart.
(a) gladdened
(b) soothed
(c) pierced
(d) embalmed
Answer:
(c) pierced

Question 9.
Mary’s __________ was totally ignored by Miss. Meadows.
(a) Rose
(b) Lilly
(c) Chrysanthemum
(d) apple
Answer:
(c) Chrysanthemum

Question 10.
The song chosen for practice in the music class was a __________
(a) love song
(b) lament
(c) joyous song
(d) hymn
Answer:
(b) lament

Question 11.
The rejection of the flower was a __________ moment in Mary Beazley’S school life.
(a) memorable
(b) unforgettable
(c) staggering
(d) astonishing
Answer:
(c) staggering

Question 12.
Nothing could be more __________ than the lament.
(a) important.
(b) beautiful
(c) tragic
(d) fabulous
Answer:
(c) tragic

Question 13.
The last time Mr. Basil had come to see Miss. Meadow, he had worn a __________ in his buttonhole.
(a) diamond
(b) pearl
(c) rose
(d) chrysanthemum
Answer:
(c) rose

Question 14.
Mr. Basil could not refuse the headmaster’s wife’s invitation for a __________ because he couldn’t afford to be unpopular.
(a) party
(b) lecture
(c) card game
(d) dinner
Answer:
(d) dinner

Question 15.
Basil had written to Miss. Meadows that their marriage would be a __________
(a) boon
(b) mistake
(c) marvel
(d) wonder
Answer:
(b) mistake

Question 16.
Mr. Basil’s previous letter was about a __________ book-case.
(a) sandal
(b) teak
(c) neem
(d) fumed-oak
Answer:
(d) fumed-oak

Question 17.
The tiny one who clung to the lament wriggled like __________ caught on a line.
(a) dogs
(b) cats
(c) elephant
(d) fishes
Answer:
(d) fishes

Question 18.
Miss. Meadows compliment with a strange, stony tone positively __________ the younger girls.
(a) encouraged
(b) boosted
(c) frightened
(d) pleased
Answer:

Question 19.
Miss. Meadows went on recalling the struck out word __________ in his letter.
(a) ‘pale’
(b) ‘white’
(c) ‘pleasing’
(d) ‘disgust’
Answer:
(d) ‘disgust’

Question 20.
Miss __________ was the school headmistress.
(a) Glory
(b) Mary
(c) Victoria
(d) Wyatt
Answer:
(d) Wyatt

Question 21.
Mrs. Wyatt really hoped for news about a __________ through the telegram.
(a) marriage
(b) tragedy
(c) comedy
(d) practical joke
Answer:
(b) tragedy

Question 22.
Miss. Wyatt had sent for Miss. Meadow because __________ a had been received at the school office.
(a) letter
(b) money order
(c) book parcel
(d) telegram
Answer:
(d) telegram

Question 23.
On hearing the news of a telegram Miss. Meadows thought that __________ must have I committed suicide.
(a) Ryan
(b) Mary
(c) Mr. Basil
(d) Osborne
Answer:
(c) Mr. Basil

Question 24.
The telegram received the stress of Miss. Meadows but added to that of Miss __________
(a) Rose
(b) Beadle
(c) Mary
(d) Wyatt
Answer:
(d) Wyatt

Question 25.
Miss. Meadows had to struggle to lift the little girl from __________ spirit to a cheerful mood.
(a) doleful
(b) hateful
(c) disdainful
(d) cheerful
Answer:
(a) doleful

Question 26.
In order to indicate that she was her normal self again she took the __________ and held it to her lips.
(a) baton
(b) knife
(e) book
(d) chrysanthemum
Answer:
(d) chrysanthemum

Question 27.
The song after receiving the telegram sounded __________ , joyful and eager.
(a) cold
(b) distasteful
(c) mournful
(d) warm
Answer:
(d) warm

Question 28.
The fateful letter made Miss. Meadows even think of __________ her job and go into hiding.
(a) taking
(b) building
(c) resigning
(d) upscaling
Answer:
(c) resigning

Question 29.
After her brief visit to Miss. Wyatt’s room dominated the students and it was glowing with __________
(a) pain
(b) bliss
(c) expression
(d) depression
Answer:
(c) expression

Question 30.
Miss Wyatt learned that the telegram was from Miss. Meadows’ __________
(a) dad
(b) fiance
(c) brother
(d) correspondent
Answer:
(b) fiance

II. Rearrange the sentences

Question 1.
(a) She did not say thanks with warmth to her favourite pupil for the flower.
(b) Most of the children realized with alarm that Miss. Meady was in a wax.
(c) Miss. Meadows looked dejected.
(d) Meadows, responding with a grimace went away and started her music.
(e) Science mistress greeted her with a sugary smile.
Answers:
(c) Miss. Meadows looked dejected.
(e) Science mistress greeted her with a sugary smile.
(d) Meadows, responding with a grimace went away and started her music.
(a) She did not say thanks with warmth to her favourite pupil for the flower
(b) Most of the children realized with alarm that Miss. Meady was in a wax.

Question 2.
(a) She was called to Miss. Wyatt’s room and given a telegram.
(b) Miss. Meadows, reflecting her despair, asked the children to sing “a lament”
(c) Miss. Meadows was upset over her fiance’s letter calling off the marriage
(d) After seeing the contents of the telegram, Miss. Meadows almost flew back to her class on the wings of hope and gave the class a joyful song to sing.
(e) Basil seemed to have deserted her.
Answers:
(c) Miss. Meadows was upset over her fiance’s letter calling off the marriage
(e) Basil seemed to have deserted her.
(b) Miss. Meadows, reflecting her despair, asked the children to sing “a lament”
(a) She was called to Miss. Wyatt’s room and given a telegram.
(d) After seeing the contents of the telegram, Miss. Meadows almost flew back to her class on the wings of hope and gave the class a joyful song to sing.

III. Identify the speaker

1. “Isn’t it cold? It might be winter” – science mistress to Miss. Meadows
2. “It is rather sharp – Miss Meadows to science mistress
3. You look frozen – Science mistress to Miss. Meadows
4. Oh! not quite as bad as that – Miss. Meadows to science mistress
5. ‘sh – sh! gives’ – Mary Beazley to fellow students
6. Silence, please! Immediately” – Miss Meadows to her student
7. “Good morning Miss. Meadows” – Mary Beasley to music miss
8. “Thank you Mary, How very nice! Turn to page 32” – Miss Meadows to Mary Beasley
9. Page fourteen, please mark the accent – Miss. Meadows to the music class children
10. What could have possessed him to write such a letter? – Monologue from Miss. Meadows
11. The third line should be one crescendo – Miss. Meadows to her class
12. “Away’ you must begin to die – to fade – until the listening ear” is nothing more than a whisper – Miss Meadows, to her music class students
13. Well, Monica, what is it? – Miss Meadows to Monica
14. Miss. Wyatt wants to see you in the mistress’s room. – Miss Monica to Miss. Meadows
15. “I shall met you in honour to talk quietly while I am away,” – Miss to her students in music class
16. “I sent for you just now because this telegram has come for you” – Miss Wyatt to Miss Meadows
17. “A telegram for me, Miss. Wyatt” – Miss Meadows to Miss Wyatt
18. “I hope it’s not bad news” – Miss Wyatt to Miss. Meadows
19. “I do hope, it’s nothing serious” – Miss Meadows to Miss Wyatt
20. Oh, no, thank you, Miss. Wyatt – Miss. Meadows to Miss Wyatt
21. You’ve fifteen minutes more of your class … Miss Meadows, haven’t you? – Miss Wyatt to Miss Meadows.
22. ”It’s from my fiance saying that… “ – Miss Meadows to Miss. Wyatt.

IV. Reading comprehension.

1. With despair – cold, sharp despair – buried deep in her heart like a wicked knife, Miss Meadows, in cap and gown and carrying a little baton, trod the cold corridors that led to the music hall. Girls of all ages, rosy from the air, and bubbling over with that gleeful excitement that comes from running to school on a fine autumn morning, hurried, skipped, fluttered by; from the hollow classrooms came quick drumming of voices; a bell rang; a voice like a bird cried, “Muriel.”

And then there came from the staircase a tremendous knock-knock-knocking. Someone had dropped her dumbbells. The Science Mistress stopped Miss Meadows. “Good morning,” she cried, in her sweet, affected drawl. “Isn’t it cold? It might be winter.” Miss Meadows, hugging the knife, stared in hatred at the Science Mistress. Everything about her was sweet, pale, like honey. You would not have been surprised to see a bee caught in the tangles of that yellow hair. “It is rather sharp,” said Miss Meadows, grimly. The other smiled her sugary smile.

Question (a)
What is a baton used for?
Answer:
A baton is a long stick used for conducting a music orchestra.

Question (b)
What was the wicked knife?
Answer:
Sharp despair was the wicked knife.

Question (c)
Why was Miss Meadows in a state of despair?
Answer:
Mr. Basic had written a letter calling off their engagement. So, Miss. Meadows was in a state of despair.

Question (d)
Why was the greeting of science mistress affected?
Science mistress did not have real feelings for Miss. Meadows. It was out of courtesy that she offered a sugary smile to Miss. Meadows and asked after the weather.

2. Forms Four, Five, and Six were assembled in the music hall. The noise was deafening. On the platform, by the piano, stood Mary Beazley, Miss Meadows’ favorite, who played accompaniments. She was turning the music stool. When she saw Miss Meadows, she gave a loud, warning “Sh-sh! Girls!” and Miss Meadows, her hands thrust in her sleeves, the baton under her arm, strode down the centre aisle, mounted the steps, turned sharply, seized the brass music stand, planted it in front of her, and gave two sharp taps with her baton for silence.

“Silence, please! Immediately!” and, looking at nobody, her glance swept over that sea of coloured flannel blouses, with bobbing pink faces and hands, quivering butterfly hair-bows, and music-books outspread. She knew perfectly well what they were thinking. “Meady is in a wax.” Well, let them think it! Her eyelids quivered; she tossed her head, defying them. What could the thoughts of those creatures matter to someone who stood there bleeding to death, pierced to the heart, by such a letter

Question (a)
Who was Miss. Meadows favourite pupil?
Answer:
Mary Beazley was Miss. Meadows’favourite pupil.

Question (b)
How did Mary alert the fellow students?
Answer:
On seeing Miss. Meadows, Mary alerted the fellow students saying,” sh – sh! girls”.

Question (c)
How did Miss. Meadows silence the music class?
Answer:
There was a brass music stand. Miss. Meadows gave two sharp taps with her baton to silence the music class.

Question (d)
According to Miss. Meadows, what were the children thinking about her on that bad day?
Answer:
Children were thinking that Miss. Meady is in a wax”.

Question (e)
What did the thoughts of children not affect Miss. Meadows?
Answer:
The letter from Mr. Basil had pierced her heart. She was bleeding to death. In such a state, Miss. Meadows could not possibly think about what the children were thinking about her.

The Singing Lesson About the Author

Kathleen Mansfield Murry (1888 – 1923) was a New Zealand short story writer who wrote under the pen-name Katherine Mansfield. She left New Zealand at the age of 19 and settled in the United Kingdom where she gained the friendship of great writers such as 0.11. Lawrence and Virginia Woolf. Bliss and The Garden Party were collections of short stories written by her. She wrote many poems and her collected letters were a great success.

The Singing Lesson Summary

This story depicts the fact that human moods are often influenced by experiences good or bad. The story revolves around the swings of mood experienced by Miss. Meadows and how it affected her work directly. Miss. Meadows, a music teacher aged 30, is engaged to 25 years old Basil. It was a huge surprise to everyone including the science teacher whom Miss. Meadows hates with all her heart. Suddenly she receives a disheartening letter from Basil that he is not a ‘marrying type of man’. The very idea of marriage gives him a feeling of “disgust”. But out of courtesy he had struck down the word disgust and written “regret”. After reading the letter Miss. Meady became gloomy. She had a feeling that her engagement was broken and it would soon come to the knowledge of everyone.

She would be a laughing stock. She will have to resign her job and go into hiding somewhere. This feeling of despair and disappointment had hurt her so much that she did not even accept the chrysanthemum from her favourite student Mary Beazley. A Chinese proverb says, “One cannot prevent. Under normal circumstances, she would have tucked the flower in her belt and returned a beaming smile to her favourite pupil. Miss. Meady made the children sing a lament creating an atmosphere of icy gloom befitting an occasion of mourning. She was very severe with young ones who didn’t evidence considerable pain and expression in her voice. Relief came to the drudgery of lament in the form of a telegram. Monica informed Miss. Meadows to meet the Headmistress. Miss. Meadows wondered if Mr. Basil had committed suicide. Her hands flew out in anxiety to collect the telegram from Miss. Wyatt.

Miss. Wyatt hoped it was bad news but out of politeness said, “I hope it is not bad news.” Miss. Meadows tore open the telegram. To her great relief it read, “Pay no attention to letter. Must have been mad, bought hat-stand today-Basil”. To answer the anxious query of Miss. Wyatt, Miss. Meadows blushed and said it was from her fiance. This happy turn of events upset Miss. Wyatt who disallowed telegrams on happy occasions. She reminded her of the 15 minutes left of her music class. Miss. Meadows ran all the way back to the music class. It appeared that she was flying on the wings of hope, love and joy. She picked up the deserted yellow chrysanthemum and held it to her lips to hide her smile.

Her mood suddenly switched over boundless joy. It reflected in the music lesson. She asked her pupils to turn to page 32 and sing the most joyous song the children had ever practised. Those who were blowing their nose from feigned sorrow and rigidity of the music, couldn’t suddenly move on to a joyful note. Miss. Meadow chided them for lack of feeling and expression.

Conclusion: The telegram restores her hopes, joy and faith in future, Many of us become prisoners of circumstances and over react to pinpricks in life. One should learn to be composed and take all kinds of information with a pinch of salt. Birds of sorrow hovering over one’s head. But one can prevent them from building nests in one’s head.

Textual:

• accompaniments – music played to support an instrument, voice or group
• aisle – a passage between rows of seats
• drawl – slow, lazy way of talking
• fiance – a man to whom one is engaged to be married
• forte – a musical tone played loudly
• grimace – expression of disgust on a person’s face of a music orchestra
• tangles – a contused mass, twisted

Additional:

• chided -rebuked
• disgust – revulsion
• disallow – refuse
• gloom – dejection
• joyful – cheerful
• joyous – happy
• lament – an expression of grief
• regret – feel sad
• relief – the feeling of relaxation from tension
• suicide – killing oneself
• upset – pained

Students can Download Economics Chapter 7 International Economics Questions and Answers, Notes Pdf, Samacheer Kalvi 12th Economics Book Solutions Guide Pdf helps you to revise the complete Tamilnadu State Board New Syllabus and score more marks in your examinations.

Tamilnadu Samacheer Kalvi 12th Economics Solutions Chapter 7 International Economics

Samacheer Kalvi 12th Economics International Economics Text Book Back Questions and Answers

Part – A
Multiple Choice Questions.

Question 1.
Trade between two countries is known as ………………………. trade
(a) External
(b) Internal
(c) Inter – regional
(d) Home
Answer:
(a) External

Question 2.
Which of the following factors influence trade?
(a) The stage of development of a product
(b) The relative price of factors of productions
(c) Government
(d) All of the above.
Answer:
(d) All of the above.

Question 3.
International trade differs from domestic trade because of ……………………….
(a) Trade restrictions
(b) Immobility of factors
(c) Different government policies
(d) All the above
Answer:
(d) All the above

Question 4.
In general, a primary reason why nations conduct international trade is because ……………………….
(a) Some nations prefer to produce one thing while others produce another
(b) Resources are not equally distributed among all trading nations
(c) Trade enhances opportunities to accumulate profits
(d) Interest rates are not identical in all trading nations
Answer:
(b) Resources are not equally distributed among all trading nations

Question 5.
Which of the following is a modem theory of international trade?
(a) Absolute cost
(b) Comparative cost
(c) Factor endowment theory
(d) None of these
Answer:
(c) Factor endowment theory

Question 6.
Exchange rates are determined in ……………………….
(a) Money market
(b) Foreign exchange market
(c) Stock market
(d) Capital market
Answer:
(b) Foreign exchange market

Question 7.
Exchange rate for currencies is determined by supply and demand under the system of ……………………….
(a) Fixed exchange rate
(b) Flexible exchange rate
(c) Constant
(d) Government regulated
Answer:
(b) Flexible exchange rate

Question 8.
Net export equals ……………………….
(a) Export × Import
(b) Export + Import
(c) Export – Import
(d) Exports of services only
Answer:
(c) Export – Import

Question 9.
Who among the following enunciated the concept of single factoral terms of trade?
(a) Jacob Viner
(b) G.S.Donens
(c) Taussig
(d) J.S.Mill
Answer:
(a) Jacob Viner

Question 10.
Terms of Trade of a country show ……………………….
(a) Ratio of goods exported and imported
(b) Ratio of import duties
(c) Ratio of prices of exports and imports
(d) Both (a) and (c)
Answer:
(c) Ratio of prices of exports and imports

Question 11.
Favourable trade means value of exports are ………………………. Than that of imports.
(a) More
(b) Less
(c) More or Less
(d) Not more than
Answer:
(a) More

Question 12.
If there is an imbalance in the trade balance (more imports than exports), it can be reduced by ……………………….
(a) Decreasing customs duties
(b) Increasing export duties
(c) Stimulating exports
(d) Stimulating imports
Answer:
(c) Stimulating exports

Question 13.
BOP includes ……………………….
(a) Visible items only
(b) Invisible items only
(c) Both visible and invisible items
(d) Merchandise trade only
Answer:
(c) Both visible and invisible items

Question 14.
Components of balance of payments of a country includes ……………………….
(a) Current account
(b) Official account
(c) Capital account
(d) All of above
Answer:
(d) All of above

Question 15.
In the case of BOT ……………………….
(a) Transactions of goods are recorded.
(b) Transactions of both goods and services are recorded.
(c) Both capital and financial accounts are included.
(d) All of these
Answer:
(a) Transactions of goods are recorded.

Question 16.
Tourism and travel are classified in which of balance of payments accounts?
(a) Merchandise trade account
(b) Services account
(c) Unilateral transfers account
(d) Capital account
Answer:
(b) Services account

Question 17.
Cyclical disequilibrium in BOP occurs because of ……………………….
(a) Different paths of business cycle.
(b) The income elasticity of demand or price elasticity of demand is different.
(c) Long – run changes in an economy
(d) Both (a) and (b)
Answer:
(d) Both (a) and (b)

Question 18.
Which of the following is not an example of foreign direct investment?
(a) The construction of a new auto assembly plant overseas
(b) The acquisition of an existing steel mill overseas
(c) The purchase of bonds or stock issued by a textile company overseas
(d) The creation of a wholly owned business firm overseas
Answer:
(c) The purchase of bonds or stock issued by a textile company overseas

Question 19.
Foreign direct investments not permitted in India ……………………….
(a) Banking
(b) Automic energy
(c) Pharmaceutical
(d) Insurance
Answer:
(b) Automic energy

Question 20.
Benefits of FDI include, theoretically ……………………….
(a) Boost in Economic Growth
(b) Increase in the import and export of goods and services
(c) Increased employment and skill levels
(d) All of these
Answer:
(d) All of these

Part – B
Answer The Following Questions Each Question Carries 2 Marks.

Question 21.
What is International Economics?
Answer:

1. International Economics is that branch of economics which is concerned with the exchange of goods and services between two or more countries. Hence the subject matter is mainly related to foreign trade.
2. International Economics is a specialized field of Economics which deals with the economic interdependence among countries and studies the effects of such interdependence and the factors that affect it.

Question 22.
Define international trade?
Answer:
International Trade refers to the trade or exchange of goods and services between two or more countries. In other words, it is a trade among different countries or trade across political boundaries. It is also called as ‘external trade’ or ‘foreign trade’ or ‘inter-regional trade’.

Question 23.
State any two merits of trade?
Answer:

1. Trade is one of the powerful forces of economic integration.
2. The term ‘trade’ means exchange of goods, wares or merchandise among people.

Question 24.
What is the main difference between Adam Smith and Ricardo with regard to the emergence of foreign trade?
Answer:
Adam Smith Foreign Trade:

1. According to Adam Smith the basis of International trade was absolute cost advantage.
2. Trade between two countries would be mutually beneficial when one country produces a commodity at an absolute cost advantage.
3. Adam Smith argued that all nations can be benefitted when there is free trade and specialisation interms of their absolute cost advantage.

Ricardo Foreign Trade:

1. Ricardo demonstrates that the basis of trade is the comparative cost difference.
2. Trade can take place even if the absolute cost difference is absent but there is comparative cost difference.
3. According to Ricardo a country can gain from trade when it produces at relatively lower costs.

Question 25.
Define Terms of Trade?
Answer:
Terms of Trade:

1. The gains from international trade depend upon the terms of trade which refers to the ratio of export prices to import prices.
2. It is the rate at which the goods of one country are exchanged for goods of another country’.
3. It is expressed as the relation between export prices and import prices.
4. Terms of trade improves when average price of exports is higher than average price of imports.

Question 26.
What do you mean by balance of payments?
Answer:
Balance of Payments (BOP):

1. BoP is a systematic record of a country’s economic and financial transactions with the rest of the world over a period of time.

2. When a payment is received from a foreign country, it is a credit transaction while a payment to a foreign country is a debit transaction.

3. The principal items shown on the credit side are exports of goods and services, transfer receipts in the form of gift etc., from foreigners, borrowing from abroad, foreign direct investment and official sale of reserve assets including gold to foreign countries and international agencies.

4. The principal items on the debit side include imports of goods and serv ices, transfer payments to foreigners, lending to foreign countries, investments by residents in foreign countries and official purchase of reserve assets or gold from foreign countries and international agencies.

Question 27.
What is meant by Exchange Rate?
Meaning of Foreign Exchange (FOREX):

1. FOREX refers to foreign currencies. The mechanism through which payments are effected between two countries having different currency systems is called FOREX system. It covers methods of payment, rules and regulations of payment and the institutions facilitating such payments.

2. “FOREX is the system or process of converting one national currency into another, and of transferring money from one country to another”.

Part – C
Answer The Following Questions Each Question Carries 3 Marks.

Question 28.
Describe the subject matter of International Economics?
Answer:
Subject Matter of International Economics:
The subject matter of International Economics includes large number of segments which are classified into the following parts.

1. Pure Theory of Trade:
This component explains the causes for foreign trade, composition, direction and volume of trade, determination of the terms of trade and exchange rate, issues related to balance of trade and balance of payments.

2. Policy Issues:
Under this part, policy issues such as free trade vs. protection, methods of regulating trade, capital and technology flows, use of taxation, subsidies and dumping, exchange control and convertibility, foreign aid, external borrowings and foreign direct investment, measures of correcting disequilibrium in the balance of payments etc are covered.

3. International Cartels and Trade Blocs:
This part deals with the economic integration in the form of international cartels, customs unions, monetary unions, trade blocs, economic unions and the like. It also discusses the operation of Multi National Corporations (MNCs).

4. International Financial and Trade Regulatory Institutions:
The financial institutions like International Monetary Fund IMF, IBRD, WTO etc which influence international economic transactions and relations shall also be the part of international economics.

Question 29.
Compare the Classical Theory of international trade with Modern Theory of International trade?
Answer:
Classical Theory of International Trade:

1. The classical theory explains the phenomenon of international trade on the basis of labour theory of value.
2. It presents a one factor (labour) model.
3. It attributes the differences in the comparative costs to differences in the productive efficiency of workers in the two countries.

Modern Theory of International Trade:

1. The modem theory explains the phenomenon of international trade on the basis of general theory of value.
2. It presents a multi – factor (labour and capital) model.
3. It attributes the differences in comparative costs to the differences in factor endowments in the two countries.

Question 30.
Explain the Net Barter Terms of Trade and Gross Barter Terms of Trade?
Answer:
1. Net Barter Terms of Trade:
This type was developed by Taussig in 1927.The ratio between the prices of exports and of imports is called the “net barter terms of trade’. It is named by Viner as the ‘commodity terms of trade’.
It is expressed as:
T_n = (P _x /P_m ) × 100
Where,
T_n = Net Barter Terms of Trade
P_x = Index number of export prices
P_m = Index number of import prices
This is used to measure the gain from international trade. If ‘Tn’ is greater than 100, then it is a favourable terms of trade which will mean that for a rupee of export, more of imports can be received by a country.

2. Gross Barter Terms of Trade:
This was developed by Taussig in 1927 as an improvement over the net terms of trade. It is an index of relationship between total physical quantity of imports and the total physical quantity of exports.
T = (Q_m/Q_x) × 100
Where,
Q_m = Index of import quantities
Q_x = Index of export quantities
If for a given quantity of export, more quantity of import can be consumed by a country, then one can say that terms of trade are favourable.

Question 31.
Distinguish between Balance of Trade and Balance of Payments?
Answer:
Balance of Trade:

1. Balance of Trade refers to the total value of a country’s exports of commodities and total value of imports of commodities.
2. Only export and import of commodities are included in the statement of Balance of Trade of a country.
3. The Balance of Trade between the values of goods exchanged between two countries.
4. Balance of Trade is a merchandise items or visible items only.

Balance of Payments:

1. Balance of payments is a systematic record of a country’s economic and financial transactions with the rest of the world over a period of time.
2. The principal items shown on the credit side are exports of goods and services, transfer receipts in the form of gift, etc.
3. The Balance of payments between the values of goods and services changed between two countries.
4. Balance of payments is a both visible and non – visible items.

Question 32.
What are import quotas?
Answer:
Import Control: Imports may be controlled by

1. Imposing or enhancing import duties
2. Restricting imports through import quotas
3. Licensing and even prohibiting altogether the import of certain non-essential items. But this would encourage smuggling.

Question 33.
Write a brief note on flexible exchange rate?
Answer:
Flexible Exchange Rates: Under the flexible exchange rate (also known as floating exchange rate) system, exchange rates are freely determined in an open market by market forces of
demand and supply

Question 34.
State the objectives of Foreign Direct Investment.
Answer:
Objectives of FDI:
FDI has the following objectives.

1. Sales Expansion
2. Acquisition of resources
3. Diversification
4. Minimization of competitive risk.
   • FDI may help to increase the investment level and thereby the income and employment in the host country.
   • Direct foreign investment may facilitate transfer of technology to the recipient country.
   • FDI may also bring revenue to the government of host country when it taxes profits of foreign firms or gets royalties from concession agreements.
   • A part of profit from direct foreign investment may be ploughed back into the expansion, modernization or development of related industries.
   • It may kindle a managerial revolution in the recipient country through professional management and sophisticated management techniques.
   • Foreign capital may enable the country to increase its exports and reduce import requirements. And thereby ease BoP disequilibrium.
   • Foreign investment may also help increase competition and break domestic monopolies.
   • If FDI adds more value to output in the recipient country than the return on capital from foreign investment, then the social returns are greater than the private returns on foreign investment.
   • By bringing capital and foreign exchange FDI may help in filling the savings gap and the foreign exchange gap in order to achieve the goal of national economic development.
   • Foreign investments may stimulate domestic enterprise to invest in ancillary industries in collaboration with foreign enterprises.

Part – D
Answer The Following Questions Each Question Carries 5 Marks.

Question 35.
Discuss the differences between Internal Trade and International Trade?
Answer:
Internal Trade:

1. Trade takes place between different individuals and firms within the same nation.
2. Labour and capital move freely from one region to another.
3. There will be free flow of goods and services since there are no restrictions.
4. There is only one common currency.
5. The physical and geographical conditions of a country are more or less similar.
6. Trade and financial regulations are more or less the same.
7. There is no difference in political affiliations, customs and habits of the people and government policies.

International Trade:

1. Trade takes place between different individuals and firms in different countries.
2. Labour and capital do not move easily from one nation to another.
3. Goods and services do not easily move from one country to another since there are a number of restrictions like tariff and quota.
4. There are different currencies.
5. There are differences in physical and geographical conditions of the two countries.
6. Trade and financial regulations such as interest rate, trade laws differ between countries.
7. Differences are pronounced in political affiliations, habits and customs of the people and government policies

Question 36.
Explain briefly the Comparative Cost Theory?
Answer:
Ricardo’s Theory of Comparative Cost Advantage:

1. David Ricardo, the British economist in his ‘Principles of Political Economy and Taxation’ published in 1817, formulated a systematic theory called ‘Comparative Cost Theory’.

2. Ricardo demonstrates that the basis of trade is the comparative cost difference. In other words, trade can take place even if the absolute cost difference is absent but there is comparative cost difference.

3. According to Ricardo, a country can gain from trade when it produces at relatively lower costs. Even when a country enjoys absolute advantage in both goods, the country would specialize in the production and export of those goods which are relatively more advantageous.

Assumptions:

1. There are only two nations and two commodities (2 × 2 model)
2. Labour is the only element of cost of production.
3. All labourers are of equal efficiency.
4. Labour is perfectly mobile within the country but perfectly immobile between countries, (v) Production is subject
5. To the law of constant returns.
6. Foreign trade is free from all barriers.
7. No change in technology.
8. No transport cost.
9. Perfect competition.
10. Full employment.
11. No government intervention.

Illustration:
Ricardo’s theory of comparative cost can be explained with a hypothetical example of production costs of cloth and wheat in America and India.

It is evident from the example that India has an absolute advantage in production of both cloth and wheat.

However, India should concentrate on the production of wheat in which she enjoys a comparative cost advantage. (80/120 < 90/100). For America the comparative cost disadvantage is lesser in cloth production. Hence America will specialize in the production of cloth and export it to India in exchange for wheat. (Any exchange ratio between 0.88 units and 1.2 units of cloth against one unit of wheat represents gain for both the nations).

With trade, India can get 1 unit of cloth and 1 unit of wheat by using its 160 labour units. In the absence of trade, for getting this benefit, India will have to use 170 units of labour. America also gains from this trade. With trade, America can get 1 unit of cloth and one unit of wheat by using its 200 units of labour. Otherwise, America will have to use 220 units of labour for getting 1 unit of cloth and 1 unit of wheat.

Question 37.
Discuss the Modern Theory of International Trade?
Answer:
Modern Theory of International Trade:
Introduction:
The modem theory of international trade was developed by Swedish economist Eli Heckscher and his student Bertil Ohlin in 1919. This model was based on the Ricardian theory of international trade. This theory says that the basis for international trade is the difference in factor endowments. It is otherwise called as ‘Factor Endowment Theory’.

The Theory:
The classical theory argued that the basis for foreign trade was comparative cost difference and it considered only labour factor. But the modem theory of international trade explains the causes for such comparative cost difference. This theory attributes international differences in comparative costs to:

1. Difference in the endowments of factors of production between countries, and
2. Differences in the factor proportions required in production.

Assumptions:

1. There are two countries, two commodities and two factors. (2 × 2 × 2 model)
2. Countries differ in factor endowments.
3. Commodities are categorized in terms of factor intensity.
4. Countries use same production technology.
5. Countries have identical demand conditions.
6. There is perfect competition in both product and factor markets in both the countries

Explanation:
According to Heckscher – Ohlin, “a capital – abundant country will export the capital – intensive goods, while the labour-abundant country will export the labour – intensive goods”. A factor is regarded abundant or scare in relation to the quantum of other factors. A country can be regarded as richly endowed with capital only if the ratio of capital to other factors is higher than other countries

Illustration:

In the above example, even though India has more capital in absolute terms, America is more richly endowed with capital because the ratio of capital in India is 0.8 which is less than that in America where it is 1.25. The following diagram illustrates the pattern of word trade.

Limitations:

1. Factor endowment of a country may change over time.
2. The efficiency of the same factor (say labour) may differ in the two countries. For example, America may be labour scarce in terms of number of workers. But in terms of efficiency, the total labour may be larger.

Question 38.
Explain the types of Terms of Trade given by Viner?
Answer:
Terms of Trade related to the Interchange between Productive Resources:

1. The Single Factoral Terms of Trade:
Viner has devised another concept called “the single factoral terms of trade” as an improvement upon the commodity terms of trade. It represents the ratio of export – price index to the import – price index adjusted for changes in the productivity of a country’s factors in the production of exports. Symbolically, it can be stated as
T_f = (P_x / P_m ) F_x
Where, T_f stands for single factoral terms of trade index. F_x stands for productivity in exports (which is measured as the index of cost in terms of quantity of factors of production used per unit of export).

2. Double Factoral Terms of Trade:
Viner constructed another index called “Double factoral terms of Trade”. It is expressed as
T_ff = (P_x / P_m )(F_x / F_m)
which takes into account the productivity in country’s exports, as well as the productivity of foreign factors.
Here, F_m represents import index (which is measured as the index of cost in terms of quantity of factors of production employed per unit of imports).

Question 39.
Bring out the components of balance of payments account?
Answer:
Components of BOPs:
The credit and debit items are shown vertically in the BOP account of a country. Horizontally, they are divided into three categories, i.e.

1. The current account,
2. The capital account and
3. The official settlements account or official reserve assets account.

1. The Current Account:
It includes all international trade transactions of goods and services, international service transactions (i.e. tourism, transportation and royalty fees) and international unilateral transfers (i.e. gifts and foreign aid).

2. The Capital Account:
Financial transactions consisting of direct investment and purchases of interest-bearing financial instruments, non-interest bearing demand deposits and gold fall under the capital account.

3. The Official Reserve Assets Account:
Official reserve transactions consist of movements of international reserves by governments and dfficial agencies to accommodate imbalances arising from the current and capital accounts.

The official reserve assets of a country include its gold stock, holdings of its convertible foreign currencies and Special Drawing Rights (SDRs) and its net position in the International Monetary Fund (IMF).
Balance of payment (BOP) Account Chart
Credit (Receipts) – Debit (Payments) = Balance [Deficit (-), Surplus (+)]
Deficit if Debit > Credit

Question 40.
Discuss the various types of disequilibrium in the balance of payments?
Answer:
Types BOP Disequilibrium:
There are three main types of BOP Disequilibrium, which are discussed below.

1. Cyclical Disequilibrium,
2. Secular Disequilibrium,
3. Structural Disequilibrium.

1. Cyclical Disequilibrium:
Cyclical disequilibrium occurs because of two reasons. First, two countries may be passing through different phases of business cycle. Secondly, the elasticities of demand may differ between countries.

2. Secular Disequilibrium:
The secular or long-run disequilibrium in BOP occurs because of long – run and deep seated changes in an economy as it advances from one stage of growth to another. In the initial stages of development, domestic investment exceeds domestic savings and imports exceed exports, as it happens in India since 1951.

3. Structural Disequilibrium:
Structural changes in the economy may also cause balance of payments disequilibrium. Such structural changes include development of alternative sources of supply, development of better substitutes, exhaustion of productive resources or changes in transport routes and costs.

Question 41.
How the Rate of Exchange is determined? Illustrate?
Answer:
Determinants of Exchange Rates:
Exchange rates are determined by numerous factors and they are related to the trading relationship between two countries.
Factors determining Exchange Rate:

1. Differentials in Inflation
2. Differential in Interest Rates
3. Current Account Deficits
4. Public Debt
5. Terms of Trade
6. Political and Economic Stability
7. Recession
8. Speculation

1. Differentials in Inflation:

1. Inflation and exchange rates are inversely related.
2. A country with a consistently lower inflation rate exhibits a rising currency value, as its purchasing power increases relative to other currencies.

2. Differentials in Interest Rates:

1. There is a high degree of correlation between interest rates, inflation and exchange rates.
2. Central banks can influence over both inflation and exchange rates by manipulating interest rates.
3. Higher interest rates attract foreign capital and cause the exchange rate to rise and vice versa.

3. Current Account Deficits:

1. A deficit in the current account implies excess of payments over receipts.
2. The country resorts to borrowing capital from foreign sources to make up the deficit.
3. Excess demand for foreign currency lowers a country’s exchange rate.

4. Public Debt:

1. Large public debts are driving out foreign investors, because it leads to inflation.
2. As a result, exchange rate will be lower.

5. Terms of Trade:

1. A country’s terms of trade also determines the exchange rate.
2. If the price of a country’s exports rises by a greater rate than that of its imports, its terms ‘ of trade will improve.
3. Favorable terms of trade imply greater demand for the country’s exports and thus BoP becomes favorable.

6. Political and Economic Stability:
If a nation’s political climate is stable and economic performance is good, its currency value will be appreciated by attracting more foreign capital.

7. Recession:

1. Interest rates are low during the recession phase.
2. This will decrease inflow of foreign capital.
3. As a result, a currency will be depreciated against other currencies, thereby lowering the exchange rate.

8. Speculation:

1. If a country’s currency value is expected to rise, investors will demand more of that currency in order to make a profit in the near future.
2. This results in appreciation of the exchange rate.
3. Beside the above determinants, relative dominance in the global politics and the power to announce economic sanctions over other countries also determine exchange rates.

Question 42.
Explain the relationship between Foreign Direct Investment and economic development?
Answer:
Foreign Direct Investment (FDI) and Trade:

1. FDI is an important factor in global economy.
2. Foreign trade and FDI are closely related. In developing countries like India
3. FDI in the natural resource sector, including plantations, increases trade volume.
4. Foreign production by FDI is useful to substitute foreign trade.
5. FDI is also influenced by the income generated from the trade and regional integration schemes.
6. FDI is helpful to accelerate the economic growth by facilitating essential imports needed for carrying out development programmes like capital goods, technical know-how, raw materials and other inputs and even scarce consumer goods.
7. FDI may be required to fill the trade gap.
8. FDI is encouraged by the factors such as foreign exchange shortage, desire to create employment and acceleration of the pace of economic development.
9. Many developing countries strongly prefer foreign investment to imports.
10. However, the real impact of FDI on different sections of an economy.

Samacheer Kalvi 12th Economics International Economics Addtional Questions and Answers

Part – I
Multiple Choice Questions.

Question 1.
Foreign trade means ………………………..
(a) Trade between nations of the world
(b) Trade among different states
(c) Trade among two states
(d) Trade with one nation
Answer:
(a) Trade between nations of the world

Question 2.
Balance of Trade means
(a) Import and export of invisible items only
(b) Import and export of both visible and invisible items
(c) Import of visible items only
(d) Import and export of visible items only
Answer:
(d) Import and export of visible items only

Question 3.
International trade is regulated at present by ………………………..
(a) IBRD
(b) WTO
(c) OMF
(d) GATT
Answer:
(b) WTO

Question 4.
The exports of India are broadly classified into ……………………….. categories.
(a) Two
(b) Three
(c) Four
(d) Five
Answer:
(c) Four

Question 5.
The New Export – Import policy gives a further push to ………………………..
(a) Liberalisation
(b) Mixed system
(c) Capitalism
(d) Socialism
Answer:
(a) Liberalisation

Question 6.
The World Trade organisation is a ………………………..
(a) Promote of private foreign investment
(b) Promoter of International monetary co-operation
(c) Lateral trade agreement
(d) New trade body to settle trade disputes between nations
Answer:
(d) New trade body to settle trade disputes between nations

Question 7.
To promote ……………………….. stability is one of the aims of IMF.
(a) Exchange
(b) Money
(c) Investment
(d) Finance
Answer:
(a) Exchange

Question 8.
The New Export Import policy was implemented in ………………………..
(a) 1990 – 1995
(b) 1991 – 1996
(c) 1992 – 1997
(d) 1993 – 1998
Answer:
(c) 1992 – 1997

Question 9.
The role of WTO is to regulate trade among the nations of the ………………………..
(a) Trade
(b) Organisation
(c) World
(d) Regulation
Answer:
(c) World

Question 10.
The WTO was setup in the year ………………………..
(a) 1995
(b)1885
(c) 1875
(d) 1865
Answer:
(a) 1995

Question 11.
……………………….. means value of imports is in excess of the value exports.
(a) Balance of Trade
(b) Unfavourable balance of trade
(c) Favourable balance of trade
(d) Export trade
Answer:
(b) Unfavourable balance of trade

Question 12.
……………………….. items means the imports and exports of services and other foreign transfer transactions.
(a) Invisible
(b) Visible
(c) Exports
(d) Imports
Answer:
(a) Invisible

Question 13.
Foreign trade increases worker’s welfare atleast ……………………….. ways.
(a) Two
(b) Three
(c) Four
(d) Five
Answer:
(c) Four

Question 14.
……………………….. trade refers to the trade or exchange of goods and services between two or more countries.
(a) Internal
(b) External
(c) International
(d) Domestic
Answer:
(c) International

Question 15.
If trade is done on large scale it is called ………………………..
(a) Whole sale trade
(b) State trade
(c) Central trade
(d) World trade
Answer:
(a) Whole sale trade

Question 16.
The relationship between value of exports and value of imports is known as ………………………..
(a) EXIM
(b) Foreign exchange
(c) Trade
(d) Terms of trade
Answer:
(d) Terms of trade

Question 17.
If the value of exports is greater than value of imports then it is known as ……………………….. terms of trade.
(a) Unfavourable
(b) Favourable
(c) Moderate
(d) Low
Answer:
(b) Favourable

Question 18.
Imports of India may be divided into ……………………….. parts.
(a) Two
(b) Three
(c) Four
(d) Five
Answer:
(b) Three

Question 19.
……………………….. means imports and exports of commodities.
(a) EXIM
(b) Visible items
(c) Non visible items
(d) Foreign exchange
Answer:
(b) Visible items

Question 20.
……………………….. means exports and imports may be exactly equal.
(a) Balance of trade
(b) Balance of payments
(c) Balanced balance of Trade
(d) Balanced balance of payments
Answer:
(c) Balanced balance of Trade

Question 21.
A special branch of Economics which primarily deals with the basics of ……………………….. trade.
(a) Internal
(b) External
(c) International
(d) Foreign trade
Answer:
(c) International

Question 22.
FDI objective is called ………………………..
(a) Sales expansion
(b) Export expansion
(c) Import expansion
(d) EXIM expansion
Answer:
(a) Sales expansion

Question 23.
The currency of another country is called ………………………..
(a) Money transfer
(b) Money exchange
(c) Foreign exchange
(d) Foreign transfer
Answer:
(c) Foreign exchange

Question 24.
Abundance in the availability of a factor in a country is called ………………………..
(a) Endowment policy
(b) Comparative cost
(c) Absolute cost
(d) Factor Endowment
Answer:
(d) Factor Endowment

Question 25.
Foreign Investment mostly takes the form of ………………………..
(a) Indirect investment
(b) Direct investment
(c) IMF investment
(d) World bank investment
Answer:
(b) Direct investment

II. Match the following and choose the correct answer by using codes given below:

Question 1.
A. Internal Trade – (i) International trade
B. Modem Theory – (ii) Labour
C. Classical Theory – (iii) Geographical boundaries
D. Modem Theory – (iv) Eli Heckscher
Codes:
(a) A (ii) B (iii) C (iv) D (i )
(b) A (iii) B (i) C (ii) D (iv)
(c) A (iv) B (ii) C (i) D (iii)
(d) A (i) B (iv) C (iii) D (ii)
Answer:
(b) A (iii) B (i) C (ii) D (iv)

Question 2.
A. Export – (i) Disequillibrium
B. Secular – (ii) Surplus goods
C. Delibrate measure – (iii) Foreign loans
D. Monetary measures – (iv) Exchange control
Codes:
(a) A (ii) B (i) C (iii) D (iv)
(b) A (i) B (ii) C (iv) D (iii)
(c) A (iii) B (iv) C (ii) D (i)
(d) A (iv) B (iii) C (i) D (ii)
Answer:
(a) A (ii) B (i) C (iii) D (iv)

Question 3.
A. Adam Smith – (i) Foreign Exchange
B. Eli Heckscher – (ii) Absolute cost advantage
C. Movement of goods – (iii) Modem theory of International trade
D. FOREX – (iv) Visible trade
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (ii) B (iii) C (iv) D (i)
(c) A (iv) B (i) C (ii) D (iii)
(d) A (iii) B (iv) C (i) D (ii)
Answer:
(b) A (ii) B (iii) C (iv) D (i)

Question 4.
A. Term of trade – (i) Official reserve
B. FDI – (ii) Exchange rate
C. Gold stock – (iii) Income terms of trade
D. G.S; Dorrance – (iv) Global economy
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (iv) B (iii) C (ii) D (i)
(c) A (ii) B (iv) C (i) D (iii)
(d) A (iii) B (i) C (iv) D (ii)
Answer:
(c) A (ii) B (iv) C (i) D (iii)

Question 5.
A. Net Barter Terms of Trade – (i) T_f = (P_x / P_m)F_s
B. Gross Barter Terms of Trade – (ii) T_n = (P_s / P_m) × 100
C. Income Terms of Trade – (iii) T_g = (Q_m / Q_s) × 100
D. Single Factoral Terms of Trade – (iv) T_s = (P_s / P_m)Q_s
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (iv) B (iv) C (i) D (ii)
(c) A (iv) B (i) C (ii) D (iii)
(d) A (ii) B (iii) C (iv) D (i)
Answer:
(d) A (ii) B (iii) C (iv) D (i)

III. State whether the statements are true or false.

Question 1.
(i) Trade is one of the powerful forces of economic integration.
(ii) Price of a commodity is measured by the amount of labour required to produce it.

(a) Both (i) and (ii) are false
(b) Both (i) and (ii) are true
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(b) Both (i) and (ii) are true

Question 2.
(i) International Economics is a specialized field of economics.
(ii) Inflation and exchange rates are direct relationship.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is false but (ii) is true
(d) (i) is true but (ii) is false .
Answer:
(d) (i) is true but (ii) is false.

Question 3.
(i) Movement of goods are called “Visible Trade”.
(ii) Only export and import of commodities are included in the statement of balance of trade of the country.

(a) Both (i) and (ii) are false
(b) Both (i) and (ii) are true
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(b) Both (i) and (ii) are true

Question 4.
(i) The Income terms of trade was given by Taussig.
(ii) Gross Barter Terms of trade was developed by G.S. Dorrance.

(a) Both (i) and (ii) are false
(b) Both (i) and (ii) are true
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are false

Question 5.
(i) Viner constructed another index called “Double Factoral terms of Trade”.
(ii) Viner has devised another concept called the “Single factoral terms of trade”.

(a) Both (i) and (ii) are false
(b) Both (i) and (ii) are true
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(b) Both (i) and (ii) are true

IV. Which of the following is correctly matched.

Question 1.
(a) David Ricardo – Factor Endowment Theory
(b) Eli Heckscher – British Economist
(c) Marshall – Swedish Economist
(d) Adam Smith – Theory of Absolute cost advantage
Answer:
(d) Adam Smith – Theory of Absolute cost advantage

Question 2.
(a) T_N = (P_x / P_m) x 100 – Net Barter Term of Trade
(b) T = (Q_m / Q_x) x 100 – Income Terms of Trade
(c) T_y = (P_x / P_m) Q_x – Gross Barter Terms of Trade
(d) T_ff = (P_x / P_m)(F_x / F_m) – Single Factoral Terms of Trade
Answer:
(a) T_N = (P_x / P_m) x 100 – Net Barter Term of Trade

Question 3.
(a) SDR – Special Drawing Rights
(b) IMF – India Monetary Fund
(c) BOP – Balance of Price
(d) BOT – Balance of Technology
Answer:
(a) SDR – Special Drawing Rights

Question 4.
(a) NER – Normal Exchange Rate
(b) RER – Real Exchange Ratio
(c) NEER – Normal Effective Exchange Rate
(d) REER – Real Effective Exchange Rate
Answer:
(d) REER – Real Effective Exchange Rate

Question 5.
(a) FDI – Foreign Direct Investment
(b) FOREX – Foreign Export
(c) UDC – Under Development Consumption
(d) MNC – Multi National Country
Answer:
(a) FDI – Foreign Direct Investment

V. Which of the following is not correctly matched.

Question 1.
(a) P₂ – Price level in India
(b) P_f – Price level in abroad (say VS)
(c) e – Nominal exchange rate is flexible
(d) P_x – Price index of exports
Answer:
(c) e – Nominal exchange rate is flexible

Question 2.
(a) Internal Trade – Trade with in Nation
(b) External Trade – Trade between two countries
(c) Balance of Trade – Visible Trade
(d) Income Terms of Trade – Adam smith
Answer:
(d) Income Terms of Trade – Adam smith

Question 3.
(a) FOREX – Foreign Exchange
(b) WTO – World Trade Organisation
(c) FDI – Foreign Direct Investment
(d) IBRD – india Bank Recruitment Development
Answer:
(d) IBRD – india Bank Recruitment Development

Question 4.
(a) Cartels – Economic Integration
(b) Scarce factor – Imports
(c) Factor endowment theory – Ohlin and Ricardo
(d) Labour cost – Unrealistic
Answer:
(c) Factor endowment theory – Ohlin and Ricardo

Question 5.
(a) Intra – regional trade – Internal trade
(b) World Bank – IMF
(c) Types of Exchange Rate – Fixed exchange rate system
(d) Equillibrium Exchange Rate – David Ricardo
Answer:
(d) Equillibrium Exchange Rate – David Ricardo

VI. Pick the odd one out.

Question 1.
The major sectors benefied from FDi in India are ………………….
(a) Financial Sector
(b) Insurance
(c) Telecommunication
(d) Agriculture
Answer:
(d) Agriculture

Question 2.
Determinants of Exchange Rates
(a) Differentials in Inflation
(b) Differntials in Interest Rates
(c) Current Account Deficits
(d) Public people
Answer:
(d) Public people

Question 3.
Types of Exchange Rates
(a) REAL
(b) NEER
(c) Nominal exchange rate
(d) Real exchange rate
Answer:
(a) REAL

Question 4.
Export promotion is ………………….
(a) Reduction of duties
(b) Import Incentives
(c) Export subsidies
(d) Export Incentives
Answer:
(b) Import Incentives

Question 5.
Monetary measures is ………………………
(a) Monetary contraction
(b) Devaluation
(c) Tourism Development
(d) Exchange control
Answer:
(c) Tourism Development

VII. Assertion and Reason.

Question 1.
Assertion (A): David Ricardo was formulated as an explicit and precise theory.
Reason (R): David Ricardo developed the theory of absolute cost advantage.

(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(c) ‘A’ is true but ‘R’ is false

Question 2.
Assertion (A): Gains from International trade.
Reason (R): International trade also known as domestic trade.
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(c) ‘A’ is true but ‘R’ is false

Question 3.
Assertion (A): FDI is an Domestic Economy.
Reason (R): FDI is an Global Economy.

(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(d) ‘A’ is false but ‘R’ is true

Question 4.
Assertion (A): Exchange control means the state intervention.
Reason (R): Exchange control means the forex market.

(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’

Question 5.
Assertion (A): Price of a commodity is measured by the amount of labour required to produce it.
Reason (R): Trade is one of the Demerit.

(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(c) ‘A’ is true but ‘R’ is false

Part – B
Answer The Following Questions In One or Two Sentences.

Question 1.
Define “Domestic Trade”?
Answer:

1. It refers to the exchange of goods and services within the political and geographical boundaries of a nation.
2. It is a trade within a country.
3. This is also known as ‘domestic trade’ or ‘home trade’ or ‘intra-regional trade’.

Question 2.
State Ricardo’s Theory of comparative cost advantage criticisms?
Answer:
Criticisms:

1. Labour cost is a small portion of the total cost. Hence, theory based on labour cost is unrealistic.
2. Labourers in different countries are not equal in efficiency.

Question 3.
Write Factor endowment model?
Answer:
Factor endowment model:

1. Developed by Heckscher and Ohlin
2. Countries with a relative factor abundance can specialise and trade
3. Abundance of skilled labour → specialisation → export → exchange for goods are services produced by countries with abundance of unskilled labour
4. Exports embody the abundant factor
5. Imports embody the scarce factor

Question 4.
Write Modern Theory of International Trade differences in comparative costs?
Answer:
Modem Theory of International Trade theory attributes international differences in comparative costs to:

1. Difference in the endowments of factors of production between countries, and
2. Differences in the factor proportions required in production.

Question 5.
Write Modern Theory of International Trade Limitations?
Answer:
Limitations:

1. Factor endowment of a country may change over time.
2. The efficiency of the same factor (say labour) may differ in the two countries. For example, America may be labour scarce in terms of number of workers. But in terms of efficiency, the total labour may be larger.

Question 6.
Define “Visible Trade”?
Answer:
Visible Trade:
Only export and import of commodities are included in the statement of Balance of Trade of a country. Movements of goods (export and imports of commodities) are also known as ‘visible trade’,

Question 7.
Define “Balance of Payments Disequillibrium”?
Answer:
Balance of Payments Disequilibrium:
The BoP is said to be balanced when the receipts (R) and payments (P) are just equal, i.e.,
R / P = 1

Question 8.
Write favourable and unfavourable balance of payments and equations?
Answer:
Favourable BoP:
When receipts exceed payments, the BoP is said to be favourable. That is,
R / P > 1.

Unfavourable BOP:
When receipts are less than payments, the BoP is said to be unfavourable or adverse. That is,
R / P < 1.

Part – C
Answer The Following Questions In One Paragraph.

Question 1.
Write Adam Smith’s theory of Absolute Cost Advantage Assumptions?
Answer:
Assumptions:

1. There are two countries and two commodities (2 x 2 model).
2. Labour is the only factor of production.
3. Labour units are homogeneous.
4. The cost or price of a commodity is measured by the amount of labour required to produce it.
5. There is no transport cost.

Question 2.
Write Ricardo’s Theory of Comparative Cost Advantage Assumptions/
Answer:
Assumptions:

1. There are only two nations and two commodities (2 × 2 model)
2. Labour is the only element of cost of production.
3. All labourer s are of equal efficiency.
4. Labour is perfectly mobile within the country but perfectly immobile between countries.
5. Production is subject to the law of constant returns.
6. Foreign trade is free from all barriers.
7. No change in technology.
8. No transport cost.
9. Perfect competition.
10. Full employment.
11. No government intervention.

Question 3.
What are International Specialization gains?
Answer:
International specialization offers the following gains.

1. Better utilization of resources.
2. Concentration in the production of goods in which it has a comparative advantage.
3. Saving in time.
4. Perfection of skills in production.
5. Improvement in the techniques of production.
6. Increased production.
7. Higher standard of living in the trading countries.

Question 4.
Write favourable and unfavourable balance of Trade?
Answer:
Favourable BOT:
When the total value of commodity exports of a country exceeds the total value of commodity imports of that country, it is said that the country has a ‘favourable’ balance of trade.

Unfavourable BOT:
If total value of commodity exports of a country is less than the total . value of commodity imports of that country, that country is said to have an ‘unfavourable’ balance of trade.

Part – D
Answer The Following Questions In About A page.

Question 1.
Explain the Adam Smith’s Theory of Absolute Cost Advantage Theory and Assumptions with diagram?
Answer:
Adam Smith’s Theory of Absolute Cost Advantage:
Adam Smith argued that all nations can be benefitted when there is free trade and specialisation in terms of their absolute cost advantage.

The Theory:

1. According to Adam Smith, the basis of international trade was absolute cost advantage.

2. Trade between two countries would be mutually beneficial when one country produces a commodity at an absolute cost advantage over the other country which in turn produces another commodity at an absolute cost advantage over the first country.

Assumptions:

1. There are two countries and two commodities (2 × 2 model).
2. Labour is the only factor of production.
3. Labour units are homogeneous.
4. The cost or price of a commodity is measured by the amount of labour required to produce it.
5. There is no transport cost.

Illustration:

Absolute cost advantage theory can be illustrated with the help of the following example.

1. From the illustration, it is clear that India has an absolute advantage in the production of wheat over China and China has an absolute advantage in the production of cloth over India.
2. Therefore, India should specialize in the production of wheat and import cloth from China.
3. China should specialize in the production of cloth and import wheat from India.
4. This kind of trade would be mutually beneficial to both India and China.

Question 2.
Briefly explain the gains from International Trade Categories?
Answer:
Gains from International Trade:

1. International trade helps a country to export its surplus goods to other countries and secure a better market for it.
2. Similarly, international trade helps a country to import the goods which cannot be produced at all or can be produced at a higher cost.
3. The gains from international trade may be categorized under four heads.

I. Efficient Production:

1. International trade enables each participatory country to specialize in the production of goods in which it has absolute or comparative advantages.
2. International specialization offers the following gains.
   1. Better utilization of resources.
   2. Concentration in the production of goods in which it has a comparative advantage.
   3. Saving in time.
   4. Perfection of skills in production.
   5. Improvement in the techniques of production.
   6. Increased production.
   7. Higher standard of living in the trading countries.

II. Equalization of Prices between Countries:
International trade may help to equalize prices in all the trading countries.

1. Prices of goods are equalized between the countries (However, in reality it has not happened).
2. The difference is only with regard to the cost of transportation.
3. Prices of factors of production are also equalized (However, in reality it has not happened).

III. Equitable Distribution of Scarce Materials:
International trade may help the trading countries to have equitable distribution of scarce resources.

IV. General Advantages of International Trade:

1. Availability of variety of goods for consumption.
2. Generation of more employment opportunities.
3. Industrialization of backward nations.
4. Improvement in relationship among countries (However, in reality it has not happened).
5. Division of labour and specialisation.
6. Expansion in transport facilities.

Question 3.
Describe the Types of Terms of Trades?
Answer:
Types of Terms of Trade:
The different concepts of terms of trade were classified by Gerald M.Meier into the following three categories:
Terms of Trade related to the Ratio of Exchange between Commodities:

1. Net Barter Terms of Trade:

1. This type was developed by Taussig in 1927.
2. The ratio between the prices of exports and of imports is called the “net barter terms of trade’.
3. It is named by Viner as the ‘commodity terms of trade’.

It is expressed as:
T_n = (P_x / P_m ) × 100
Where,
T_n = Net Barter Terms of Trade
P_x = Index number of export prices
P_m = Index number of import prices
This is used to measure the gain from international trade.
If ‘T_n’ is greater than 100, then it is a favourable terms of trade which will mean that for a rupee of export, more of imports can be received by a country.

2. Gross Barter Terms of Trade:

1. This was developed by Taussig in 1927 as an improvement over the net terms of trade.
2. It is an index of relationship between total physical quantity of imports and the total physical quantity of exports.

T = (Q_m / Q_x) × 100 Where,
Q_m = Index of import quantities .
Q_x = Index of export quantities
If for a given quantity of export, more quantity of import can be consumed by a country, then one can say that terms of trade are favourable.

3. Income Terms of Trade:

1. The income terms of trade was given by G.S.Dorrance in 1948.
2. It is the index of the value of exports divided by the price index for imports multiplied by quantity index of experts.
3. In other words, it is the net barter terms of trade of a country multiplied by its exports – volume index.

T = (P_x / P_m) Q
Where,
P_x = Price index of exports
P_m = Price index of imports
Q_x = Quantity index of exports

Question 4.
Briefly explain causes for Balance of payments disequillibrium?
Answer:
Causes for BoP Disequilibrium:
The following are the major causes producing disequilibrium in the balance of payments of a country.

(I) Cyclical Fluctuation:

1. Cyclical disequilibrium in different countries is caused by their cyclical fluctuations, their phases and magnitude.
2. World trade shrinks during depression while trade flourishes during prosperity.

(II) Structural Changes:

1. Structural disequilibrium is caused by the structural changes brought by huge development and investment programmes in the developing economies.
2. Such economies may have high propensity to import for want of capital for rapid industrialization, while export may not be boosted up to that extent.

(III) Development Expenditure:

1. Development disequilibrium is caused by rapid economic development which results in income and price effects.
2. The less developed countries in the early stage of development are not self sufficient.
3. Income, savings and investment are abysmally low.
4. They depend upon developed countries for import of commodities, capital and technology.
5. Export potential is low and import intensity is high.
6. So the LDCs suffer from adverse BoP.

(IV) Consumerism:

1. Balance of payments position of a country is adversely affected by a huge increase in consumption.
2. This increases the need for imports and decreases the capacity to export.

(V) Demonstration Effect:

1. Deficit in the balance of payments of developing countries is also caused by demonstration effect which influences the people in UDCs to imitate western styled goods.
2. This will raise the propensity to import causing adverse balance of payments.
3. This is good for the developed countries.

(VI) Borrowing:

1. International borrowing and investment may cause a deficit in the balance of payments.
2. When the international borrowing is heavy, a country’s balance of payments will be adverse since it repays loans with interest.
3. Servicing of debt is a huge burden. That is why the UDCs are forced to borrow more, (viz) Technological Backwardness:
4. Due to technological backwardness, the people (Indians) are unable to use the energy (Solar) available with them.
5. As a result they import huge petroleum products from foreign countries, increasing the trade deficit.

(VII) Technological Backwardness:

1. Due to technological backwardness, the people (Indians) are unable to use the energy (Solar) available with them.
2. As a result they import huge petroleum products from foreign countries, increasing the trade deficit.

(VIII) Global Politics:

1. The rich countries (e.g. USA) need to sell their weapons to promote their economy and generate employment.

2. Hence, wars between countries (for example Iran and Irag, Pakistan and India) are stimulated In order to win the wars, the poor countries are forced to buy the weapons from weapon – rich countries, using their export earnings and creating trade deficit.

3. Thus UDCs are trapped forever.

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Samacheer Kalvi 11th Commerce Solutions Chapter 27 Facilitators of International Business

Samacheer Kalvi 11th Commerce Facilitators of International Business Textbook Exercise Questions and Answers

I. Choose the Correct Answer

Question 1.
General Agreement on Tariff and Trade was signed on ………………
(a) 30 – October – 1947
(b) 29 – October – 1947
(c) 28 – October – 1947
(d) 26 – October – 1947
Answer:
(a) 30 – October – 1947

Question 2.
WTO was established on ………………
(a) 1 – 1 – 1996
(b) 1 – 1 – 1997
(c) 1 – 1 – 1995
(d) 1 – 1 – 1994
Answer:
(c) 1 – 1 – 1995

Question 3.
The headquarter of WTO is located at ………………
(a) New York
(b) London
(c) Geneva
(d) Brazil
Answer:
(c) Geneva

Question 4.
The day to day administration of WTO is entrusted with ………………
(a) Executive Council
(b) General Council
(c) Administrative Council
(d) General Body
Answer:
(b) General Council

Question 5.
World bank is located at ………………
(a) Washington DC
(b) New York
(c) Tokyo
(d) Hongkong
Answer:
(a) Washington DC

II. Very Short Answer Questions

Question 1.
What is WTO?
Answer:
The World Trade Organisation (WTO) was established on 1 st January 1995. The GATT was renamed as WTO with some changes. WTO has 164 member countries as of 29th July 2016. The ministerial conference consisting of the representatives of all the member countries is the highest decision-making authority of WTO.

Question 2.
What do you mean by World Bank?
Answer:
International Bank for Reconstruction and Development (IBRD) International Bank for Reconstruction and Development is commonly known as World Bank.

Question 3.
What are Special Drawing Rights?
Answer:
SDR was created by the IMF in the year 1969 as a supplementary international reserve asset. It is described as paper gold. Initially, the value of SDR was fixed to be 0.888671 grams of fine gold equivalent to one US dollar till the year 1973.

After the collapse of the Britten Wood system in 1973 SDR was redefined as a basket of currencies. From 1st October 2016 SDR basket consists of US dollar, Euro, the Chinese Rimini, Japanese Yen and British Pound sterling. The value of SDR is regularly posted daily in the IMF website.

Question 4.
What is SAARC?
Answer:
South Asian Association for Regional Cooperation is the regional intergovernmental organization and geopolitical union of nations in South Asia.

Question 5.
What is GATT?
Answer:
The General Agreement on Tariffs and Trade was the first worldwide multilateral free trade agreement. It was in effect from June 30, 1948, until January 1, 1995. The purpose of GATT was to eliminate harmful trade protectionism.

III. Short Answer Questions

Question 1.
What is the primary motive for the establishment of WTO?
Answer:
GATT achieved many successes but various countries felt the need to create a new international body to replace the GATT. The GATT which remained in force from 1948 to 1994 thus came to an end with the establishment of the World Trade Organisation (WTO) on 1st January 1995.

Question 2.
Name the affiliate of World Bank.
Answer:
The following are the affiliates of the world bank.

• International Development Association
• International Financial Corporation
• Multinational Investment Guarantee Agency
• International Centre for Settlement of Investment Disputes

Question 3.
What are the criticisms of the World Bank?
Answer:

1. Free Trade Benefits Developed Countries more than Developing Countries
2. Most Favoured Nation Principles
3. Failure to Reduce Tariffs on Agriculture
4. Neglect of Farmers Interest in Developing Countries
5. Neglect Environmental Considerations
6. Neglect of Cultural and Social Factors
7. The inability of People in Developing Countries to Buy Life Saving Drugs

Question 4.
How is the value of SDR determined currently?
Answer:
It is calculated as the sum of a specific amount of each basket currency value in US dollar based on the spot exchange rates observed at noon London time. IMF allocates SDR to member countries in proportion to their quota.

Question 5.
Mention the functions of SAARC.
Answer:

1. Monitoring and coordinating the development program
2. Determining inter-sectoral priorities
3. Mobilizing cooperation within and outside the region.
4. Dealing with modalities of financing

IV. Long Answer Questions

Question 1.
Point out the objectives of WTO.
Answer:
Meaning: The World Trade Organisation (WTO) was established on 1st January 1995. The GATT was renamed as WTO with some changes. WTO has 164 member countries as of 29th July 2016. The ministerial conference consisting of the representatives of all the member countries is the highest decision-making authority of WTO The objectives of WTO include the following.

• Improving the standard of living of people in member countries
• Making optimum utilization of the world’s resources for sustainable development of member countries.
• Promoting an integrated more viable and durable trading system in the sphere of international business
• Expansion of trade in goods and services
• Ensuring full employment and large steady growth volume of real income and effective demand
• Protecting the environment.

Question 2.
Write down the functions of WTO.
Answer:

1. It is a forum for negotiation and formalization of a trade agreement among the member countries.
2. It settles disputes and grievances relating to trade among the member countries.
3. It frames a commonly accepted code of conduct in order to reduce trade barriers.
4. It holds consultations with IMF and World Bank (IBRD) and its affiliates to bring about a greater understanding and cooperation in global economic policymaking.
5. It supervises the operations of the agreement relating to the General Agreement on Tariffs and Trade(GATT) and Trade.
6. Related Intellectual Properties Rights (TRIPS)
7. It regulates trade between participating countries.

Question 3.
Describe the benefits of WTO.
Answer:
Meaning: The World Trade Organisation (WTO) was established on 1 st January 1995. The GATT was renamed as WTO with some changes. WTO has 164 member countries as of 29th July 2016. The ministerial conference consisting of the representatives of all the member countries is the highest decision-making authority of WTO.
Some of the major benefits of WTO are as follows.

• WTO is promoting international peace and creating a conducive environment for conducting international trade
• It settles the trade disputes amicably among the member countries.
• It promotes the standard of living of people by increasing their income level from free trades
• WTO has removed quantitative restrictions and non-tariff barriers. It has facilitated the free flow of foreign trade among the member countries.
• The countries can impose import restrictions only to correct balance of payments difficulties and not otherwise.
•  It stimulates the economic growth of developing countries by providing them with much-needed capital and giving them preferential treatment in trade-related matters.

Question 4.
Highlights the functions of IBRD.
Answer:

1. Assisting reconstruction of war-affected countries.
2. Promoting economic growth and balanced growth of the international business.
3. Promoting infrastructural facilities like energy and transportation, road development, etc. in member countries.
4. Encouraging agricultural and industrial development in developing countries by providing adequate resources.
5. Providing resources for promoting sanitation, education, health care and small scale enterprises in member countries.
6. Improving standard of living of people of member countries by providing assistance by removing poverty, raising productivity, providing technical support and conducting research and development.

Question 5.
Write down the functions of IMF.
Answer:
International Monetary fund (IMF) is an international organization headquartered in Washington DC. It has a membership of 189 countries. It was established in 27th December 1945 on the recommendation of the Bretton Wood Conference. It provides a shorter loan to member countries to their correct balance of payments disequilibrium.
Functions of IMF:
The functions of IMF are enumerated below

• It acts as short term credit institution at the international level.
• It provides machinery for ordinary adjustments of exchange rates.
• It has a reservoir of currencies of the member countries from which a borrower can borrow currencies of other nations.
• It promotes economic stability and global growth by encouraging countries to adopt sound economic and financial policies.
• It offers technical assistance and training to help member countries strengthen and implement effective policies. Technical assistance is offered in formulating banking, fiscal, monetary, and exchange policies.
• It helps member countries correct their imbalance in the balance of payment.

Question 6.
Explain how far India has benefited from IMF.
Answer:
Free Convertibility of Indian Rupee:
The Indian rupee has become independent after the establishment of IMF. Earlier it was linked with the pound sterling. Its value is now determined in terms of Gold. Hence it is freely convertible.

1. Loan For Development Activities: India got several loan facilities from IMF for its several development projects.
2. Ability To Purchase Foreign Currency: Government of India is able to purchase foreign currencies from time to time to meet the ever growing requirement of development activities.
3. Expert Advice: India used to get expert advice from IMF for solving the economic problems. It has given valuable advice to India with regard to financing its 5-year plan.
4. Timely Help: India has received timely help from IMF many a time to eliminate the deficit in its balance of payments. India got help from IMF during 1966 in the aftermath of the war with Pakistan. It received assistance from IMF for combating oil shock. Between 1980 and 1983 India got assistance from IMF to manage the global economic recession.
5. Financial Assistance during Natural Calamity: India has got a lot of financial assistance from IMF to solve the economic crises arising from natural calamities like floods, famine, earthquake, aggressions of Chinese and Pakistan etc. It gets technical assistance from IMF.
6. Membership in World Bank: By virtue of its membership in IMF India could become a member of the World Bank.
7. Help During 1991 Economic Crisis: During 1990, India faced a serious economic crisis. Indian Government was almost nearing bankruptcy. It got assistance from IMF by pledging ‘ its gold reserve with it to solve its balance of payments crisis.

For Own Thinking

Question a.
A vital role played in international business by WTO?
Answer:
The main goal of WTO is to help the trading industry to become smooth, fair, free and predictable.

Question b.
The necessity for the world as a global village through IMF, IBRD, and SAARC?
Answer:

1. IMR – International Monetary Fund
2. IBRD – International Bank of Reconstruction and Development
3. SAARC – South Asian Association for Regional Cooperation.

For Future Learning

Question a.
WTO – new agreements?
Answer:
TFA entered into force on 22 February 2017 following its ratification by two-thirds of the WTO membership.

Question b.
IMF World Bank and SAARC major role in international business?
Answer:

1. IMF – It works to foster global growth and economic stability by providing the policy.
2. World Bank – Provide long – term loans to developing countries for development.
3. SAARC – The independence of nations has been increased.

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Samacheer Kalvi 11th Commerce Solutions Chapter 18 Business Ethics and Corporate Governance

Samacheer Kalvi 11th Commerce Business Ethics and Corporate Governance Textbook Exercise Questions and Answers

I. Choose the Correct Answer

Question 1.
Which of the following helps in maximising sale of goods to society?
(a) Business success
(b) laws and regulations
(c) Ethics
(d) Professional management
Answer:
(c) Ethics

Question 2.
Ethics is important for …………….
(a) Top management
(b) Middle level managers
(c) Non – managerial employees
(d) All of them
Answer:
(d) All of them

Question 3.
Which of the following does not ensure effective ethical practices in a business enterprise?
(a) Publication of a code
(b) Involvement of employees
(c) Establishment of compliance mechanisms
(d) none of them
Answer:
(a) Publication of a code

Question 4.
The role of top management is to guide the entire organisation towards …………….
(a) General behaviour
(b) Organisation behaviour
(c) Ethically upright behaviour
(d) Individual behaviour
Answer:
(c) Ethically upright behaviour

Question 5.
The ethical conduct of employees leading to standard practices results in …………….
(a) Good behaviour
(b) Bad behaviour
(c) Ethical behaviour
(d) Correct decision making
Answer:
(d) Correct decision making

II. Very Short Answer Questions

Question 1.
What is ethics?
Answer:
Business ethics are the business morality generally results from an individual’s own moral standards in the context of the political and cultural environment in which the organization is operating. Ethics and profits go together in the long run. It enhances the quality of life, standard of living and business.

Question 2.
What do you mean by code?
Answer:
The organization principles are defined in the written document called code.

Question 3.
State two ways by which ethics influences behaviour.
Answer:
Ethical behaviour is the act consistent with the moral standards or codes of conduct established by society.

Question 4.
What is the need for Corporate Governance?
Answer:
Corporate Governance is the system by which businesses are directed and controlled in the best interests of all stakeholders. Good corporate governance enables corporate success and economic development.

Question 5.
What are MNCs?
Answer:
A Multinational Corporation is an organization doing business in more than one country. It is defined as an enterprise operating in several countries but managed from one country.

III. Short Answer Questions

Question 1.
Define business ethics.
Answer:
Business ethìcs may be defined as “ A set of moral standards to be followed by owners, managers and business people”.In the words of Kilcullen and Kooistra (1999), Business Ethics is “ the degree of moral obligation that may be ascribed to corporations beyond simple obedience to the laws of the state”.

Question 2.
What do you mean by the concept of business ethics?
Answer:
Business exists to supply goods and services to the people from a social point of view but from an individual point of view, the primary objective of any business unit is to make a profit. The individual objective should not be in conflict with the societal objectives. These two objectives normally contradict each other, as one business enterprise may be good in an individual objectives and bad at social objectives and vice versa.

Question 3.
Why is ethics necessary in business?
Answer:
All business units have realized that ethics is vitally important for the existence and progress of the business as well as the society. It is very important as it improves the public image, earns public confidence, and leads to greater success. Ethics and profits go together in the long run. It enhances the quality of life, the standard of living, and business.

Question 4.
What are the benefits of Corporate Governance to Shareholders?
Answer:

1. Good corporate governance enables corporate success and economic development.
2. Ensures stable growth of organizations.
3. Aligns the interests of various stakeholders.
4. Improves investor’s confidence and enables raising of capital.
5. Reduces the cost of capital for companies.
6. Has a positive impact on the share price.

Question 5.
Illustrate with an example the working of an MNC.
Answer:
Any company is referred to as a Multinational company or corporation (MNC) when that company manages its operation or production or service delivery from more than a single country. It has its headquarters based in one country with several other operating branches in different other countries.

The country where the headquarter is located is called the home country whereas; the other countries with operational branches are called the host countries. Example McDonald’s an American food company has its head office in California, the United States has 69 million customers in over 100 countries.

IV. Long Answer Questions

Question 1.
Explain the different key elements of business ethics.
Answer:
Some of the basic elements of business ethics while running a business enterprise are:
Top Management Commitment:
The top management has a very important role to guide the entire organization towards ethical behaviour. The top-level personnel in any organisation should work openly and strongly committed towards ethical conduct and guide people working at middle and low level to follow ethical behaviour.

Publication of a “Code”:
Generally, organisations formulate their own ethical codes for the conduct of the enterprise; it should be followed by the employees of the organisation. The organisation principles are defined in the written document called code. The code of conduct covers various areas such as health and safety in the workplace, fair dealing in selling and marketing activities, ethical practices in the business, etc.

Establishment of Compliance Mechanism:
To make sure that actual decisions match with a firm’s ethical standards, suitable mechanisms should be established. Any organisation following ethical codes in training, recruitment, selection, etc., is sure to be profitable. The organisation must provide for an environment where the employees are to free to report about matters of unethical behaviour.

Involving Employees at All Levels:
It is the employees at different levels who implement ethics policies to make the ethical business a reality. Therefore, their involvement in ethics programmes becomes a must. For example a small group of employees can be formed tö discuss the important ethics policies of firms and examine the attitudes of employees towards these policies.

Measuring Results:
The organisations from time to time keep a check on the ethical practices followed. Although it is difficult to accurately measure the end results of ethics programs, the firms can certainly audit to monitor compliance with ethical standards. The top management team and other employees should then discuss the results for further course of action.

Question 2.
Describe the code of business ethics.
Answer:
Code of ethics documents the generally accepted principles of ethical conduct. They are statements of values and principles which define the purpose of an organisation. It gives a clear picture of the standards that employees should follow. It guides them in decision making. The code of business ethics can include the following:

1. To offer goods at fair prices.
2. To supply goods of good quality and not to deal in spurious and sub-standard products.
3. To listen to consumer’s complaints and to reduce them.
4. Not to raise the price of its products unjustifiably.
5. Not to resort to hoarding and lack marketing.
6. Not to resort to price-cutting with the sole aim of killing competition.
7. Not to issue advertisement containing false information or exaggerated claims.
8. To pay fair wages to its employees and not to exploit them.
9. To provide a congenial work atmosphere.
10. To design the production process in such a way as to reduce environmental pollution.
11. To keep proper books of accounts and records.
12. To pay taxes regularly.
13. To complain about various business losses and never to flout Government regulations.

Question 3.
Explain the significance of Corporate Governance from the point of Stakeholders.
Answer:

• Good corporate governance corporate success and development.
• Ensures stable growth of organizations.
• Aligns the interests of various stakeholders.
• Improves investors’ confidence and enables raising of capital.
• Reduces the cost of capital for companies and ensures the efficient allocation of resources. .
• Has a positive impact on the share price
• Provides incentives to managers to achieve organizational objectives.
• Eliminates waste, corruption, risks, and mismanagement.
• Improves the image of the company and creates a strong brand as an ethical business.
• The organization is managed to benefit the stakeholders.

Question 4.
Discuss the role of International Benchmarking on the working of Companies in India.
Answer:

• Asia: Independent Directors are a requirement for listed companies in all Asian economies, where most require at least 1/3rd of the Board to be independent.
• USA: The Council of Institutional Investors (CII), Corporate Governance Policies state that at least 2/3rd of the directors should be independent.
• Europe: European Commission urges member states to have a sufficient number of independent non-executive or supervisory directors on Board.
• G20 / OECD: The latest principles encourage the prominent role of independent Board members.
• Japan: In early 2014, the Japanese Prime Minister announced the goal of increasing the percentage of women in executive positions at Japanese companies to 30% by 2020.
• UK: UK businesses had voluntary targets first set in 2011 i.e. to have 25% women on FTSE 100 (The Financial Times Stock Exchange) Boards by 2015.
• Canada: At the Federal level, two bills are currently being tabled which will impose a 40% quota for female Board members of public companies and other regulated entities such as banks and insurance companies.
• Brazil: A bill pending in the Brazilian Senate would impose a 40% female quota on the Boards of state-owned enterprises by 2022.
• France: French parliament adopted a bill that requires public companies making at least 50 million Euros in turnover and employing more than 500 workers to have 40% female Board representation by 2017.

Question 5.
Describe the benefits of increasing the number of MNCs.
Answer:
The reasons for so many MNC’s in Indian are as follows:

1. India has a huge market
2. It is one of the fastest-growing economies in the world.
3. Favorable policies of the government towards FDI.
4.  Financial liberalization of the country after 1991.
5. The government encourages and makes continuous efforts to attract. foreign investment by relaxing policies.
6. The entry of MNC’s into India has proved quite beneficial for the growth and development of the Indian economy providing employment opportunities for the young generation.

Samacheer Kalvi 11th Commerce Business Ethics and Corporate Governance Additional Questions and Answers

I. Choose the Correct Answer:

Question 1.
Ethics governs the ……………..
(a) Behaviour
(b) Ethos
(c) Life
(d) Payoffs
Answer:
(a) Behaviour

Question 2.
The organisation principles are defined in the written document called ……………..
(a) Code
(b) Law
(c) Behaviour
(d) Ethical
Answer:
(a) Code

Question 3.
…………….. has its Headquarters based in one country with several other operating branches in different other countries.
(a) MNC
(b) GDP
(c) Company
(d) Business
Answer:
(a) MNC

Question 4.
There are …………….. primary types of bench making.
(a) Two
(b) Three
(c) Four
(d) Five
Answer:
(c) Four

Question 5.
…………….. bench making is a direct competitor-to-competitor comparison of a product, service process, or method.
(a) Internal
(b) Competitive
(c) Functional
(d) Generic
Answer:
(b) Competitive

Future Learning

Question a.
Money earning cannot be the sole objective of business or life.
Answer:
The primary objective is to make a profit. The individual objective should not be with societal objectives.

Question b.
The mind of students to accept that ethics and consideration for the environment, law, etc can lengthen the income-earning of an individual or business.
Answer:
All business units have realized that ethics is vitally important for the existence and progress of the business as well as the society. Ethics and profits go together in the long run. It enhances the quality of life, the standard of living, and business.

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Samacheer Kalvi 11th Commerce Solutions Chapter 20 International Finance

Samacheer Kalvi 11th Commerce International Finance Textbook Exercise Questions and Answers

I. Choose the Correct Answer

Question 1.
An instrument representing ownership interest in securities of a foreign issuer is called …………….
(a) an ownership certificate
(b) a depositary receipt
(c) an ownership receipt
(d) None of the above
Answer:
(b) a depositary receipt

Question 2.
Issuance of DRs is based on the increase of demand in the ……………
(a) International market
(b) Local market
(c) Existing shareholders
(d) All of the above
Answer:
(a) International market

Question 3.
ADRs are issued in …………….
(a) Canada
(b) China
(c) India
(d) The USA
Answer:
(d) The USA

Question 4.
Depositary receipts that are traded in an international market other than the United States are called …………….
(a) Global Depositary Receipts
(b) International Depositary Receipts
(c) Open Market Depositary Receipts
(d) Special Drawing Rights
Answer:
(a) Global Depositary Receipts

Question 5.
……………. bond is a special type of bond issued in the currency other than the home currency.
(a) Government Bonds
(b) Foreign Currency Convertible Bond
(c) Corporate Bonds
(d) Investment Bonds
Answer:
(b) Foreign Currency Convertible Bond

II. Very Short Answer Questions

Question 1.
Who are Foreign Institutional Investors?
Answer:
The Non-residents of an investment in the equity of a domestic company without the intention of acquiring management control are known as Foreign Institutional Investors.

Question 2.
What is a Depository Receipt?
Answer:
A depository receipt is a negotiable financial instrument issued by a bank to represent a foreign company’s equity shares or securities. They are issued to attract a greater amount of investment from other countries.

Question 3.
What is a GDR (Global Depository Receipt)?
Answer:
GDR is an instrument issued abroad by a company to raise funds in some foreign currencies and is listed and traded on a foreign stock exchange.

Question 4.
What is an American Depositary Receipt (ADR)?
Answer:
ADR is a dollar-denominated negotiable certificate representing a non-US company in the US market which allows US citizens to invest in overseas securities.

Question 5.
What is a Foreign Currency Convertible Bond?
Answer:
A foreign currency convertible bond is a special type of bond issued in a currency other than the home currency.

III. Short Answer Questions

Question 1.
Explain the importance of international finance.
Answer:

• It helps in calculating the exchange rates of various currencies.
• It helps to compare the inflation rates.
• It leads to economic status can be ascertained.
• International Financial Reporting facilitates the comparison of financial statements made by various countries.
• It helps in understanding the basics of international organisations and maintaining the balance among them.
• International finance organisations mediate and resolve financial disputes among member nations.

Question 2.
What are Foreign Currency Convertible Bonds?
Answer:
A foreign currency convertible bond is a special type of bond issued in a currency other than the home currency. In other words, companies issue foreign currency convertible bonds to raise money in foreign currency.

Question 3.
Explain any three disadvantages of FDI.
Answer:
Exploiting Natural Resources: The FDI Companies deplete natural resources like water, forest, mines, etc. As a result, such resources are not available for the usage of the common man in the host country.

Heavy Outflow of capital: Foreign companies are said to take away huge funds in the form of dividends, royalty fees, etc. This causes a huge outflow of capital from the host country.

Not Transferring Technology: Some foreign enterprises do not transfer the technology to developing countries. They mostly transfer second-hand technology to the host country. They keep the fundamental aspects of technology with the parent company. In such a case, the host country may not get the advantage of technology transfer and consequently economic development.

Question 4.
State any three features of ADR.
Answer:

1. ADRs are denominated only in US dollars.
2. They are issued only to investors who are American residents.
3. The depository bank should be located in US.

Question 5.
State any three features of GDR.
Answer:

1. It is a negotiable instrument and can be traded freely like any other security. GDRs are issued to investors
2. across the country. It is denominated in any acceptable freely convertible currency. GDR is denominated in
3. any foreign currency but the underlying shares would be denominated in the local currency of the issuer.

IV. Long Answer Questions

Question 1.
Describe the importance of international finance?
Answer:
International finance plays a pivotal role in international trade and in the sphere of exchange of goods and services among the nations. The following points highlight the importance of international finance. International finance helps in calculating the exchange rates of various currencies of nations and the relative worth of each and every nation in terms thereof.

• It helps in comparing the inflation rates and getting an idea about investing in international debt securities.
• It helps in ascertaining the economic status of the various countries and in judging the foreign market.
• International Financial Reporting System (IFRS) facilitates comparison of financial statements made by
• various countries.
• It’ helps in understanding the basics of international organisations and maintaining the balance among them.
• International finance organisations such as IMF, World Bank, etc. mediate and resolve financial disputes among member nations.

Question 2.
Distinguish between GDR and ADR.
Answer:

Question 3.
State any five features of FCCB.
Answer:

1. FCCB is issued by an Indian company in foreign currency.
2. These are listed and traded in the foreign stock exchange and similar to the debenture.
3. It is a convertible debt instrument. It carries an interest coupon. It is unsecured.
4. It gives its holders the right to convert for a fixed number of shares at a predetermined price.
5. It can be converted into equity or Repository receipt after a certain period.

Question 4.
Explain any five advantages of FDI.
Answer:

1. Achieving Higher Growth in National Income: Developing countries get much-needed capital through FDI to achieve a higher rate of growth in national income.
2. Help in Addressing BOP Crisis: FDI provides an inflow of foreign exchange resources into a country. This helps the country to solve the adverse balance of payment position.
3. Faster Economic Development FDI brings technology, management, and marketing skills along with it. These are crucial for achieving faster economic development in developing countries.
4. Generating Employment Opportunities FDI generates a lot of employment opportunities in developing countries, especially in high skill areas.
5. Encouraging Competition in Host Countries Entry of FDI into developing countries promotes healthy competition therein. This leads to enterprises in developing countries operating efficiently and effectively in the market. Consumers get a variety of products of good quality at a market-determined price which usually benefits the customers.

Samacheer Kalvi 11th Commerce International Finance Additional Questions and Answers

I. Choose the Correct Answer

Question 1.
…………….. is a section of financial economics that deals with the monetary interactions that occur between two or more countries.
(a) International finance
(b) Business finance
(c) DR
(d) GDR
Answer:
(a) International finance

Question 2.
From …………….., Foreign International Investors have been allowed to invest in all securities traded on the primary and secondary markets.
(a) 1992
(b) 1991
(c) 1995
(d) 1996
Answer:
(a) 1992

Question 3.
………………. is an instrument issued abroad by a company to raise funds in some foreign currencies and is listed and traded on a foreign stock exchange.
(a) GDR
(b) DR
(c) FDI
(d) FII
Answer:
(a) GDR

II. Very Short Answer Questions

Question 1.
Define Foreign Direct Investment (FDI).
Answer:
Foreign direct investment (FDI) is an investment made by a company or an individual in one country with business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company.

Question 2.
What are Commercial Banks?
Answer:
Most of the commercial banks extend foreign currency loans for promoting business opportunities. The loans and services of various types, provided by banks differ from country to country.

Question 3.
What is International capital markets?
Answer:
Modem organisations including multinational companies depend upon sizeable borrowings in rupees as well as in foreign currencies. Prominent financial instruments used for this purpose are Depository Receipts.

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Samacheer Kalvi 11th Commerce Solutions Chapter 19 Sources of Business Finance

Samacheer Kalvi 11th Commerce Sources of Business Finance Textbook Exercise Questions and Answers

I. Choose the Correct Answer
Question 1.
What is defined as the provision of money at the time when it is required?
(a) Finance
(b) Bank
(c) Cash management
(d) None of these
Answer:
(a) Finance

Question 2.
Internal sources of capital are those that are ……………..
(a) a generated through outsiders such as suppliers
(b) generated through loans from commercial banks
(c) generated through issue of shares
(d) generated within the business
Answer:
(d) generated within the business

Question 3.
Debenture holders are entitled to a fixed rate of ……………..
(a) Dividend
(b) Profits
(c) Interest
(d) Ratios
Answer:
(c) Interest

Question 4.
Public deposits are the deposits which are raised directly from ……………..
(a) the public
(b) the directors
(c) the auditors
(d) the owners
Answer:
(a) the public

Question 5.
Equity shareholders are the …………….. of a company.
(a) Creditors
(b) Owners
(c) Debtors
(d) Employees
Answer:
(b) Owners

Question 6.
Funds required for purchasing current assets is an example for ……………..
(a) Fixed Capital Requirement
(b) Ploughing Back of Profits
(c) Working Capital Requirement
(d) Lease Financing
Answer:
(c) Working Capital Requirement

Question 7.
Which of the following holder is given voting right?
(a) Debentures
(b) Preference Shares
(c) Equity shares
(d) Bonds
Answer:
(c) Equity shares

Question 8.
It may be wise to finance fixed assets through ………………
(a) Creditors
(b) Long term debts
(c) Bank Overdraft
(d) Bills Discounting
Answer:
(b) Long term debts

II. Very Short Answer Questions

Question 1.
Write short notes on debentures.
Answer:
Debentures are an important instrument for raising long term debt capital. It is a medium to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest.

Question 2.
What do you mean by public deposits?
Answer:
Debentures are an important instrument for raising long term debt capital. A company can raise funds through the issue of debentures which bear a fixed rate of interest.

Question 3.
Name any two sources of funds classified under borrowed funds.
Answer:
Debentures and Loans from banks and financial institutions.

Question 4.
Name any two internal sources of business finance.
Answer:

1. Retained earnings
2. Collections form receivables

Question 5.
State any two factors that affect the choice of source of finance.
Answer:

1. The creditworthiness of the firms.
2. The time period for which the business finance is required determines the suitable source.

III. Short Answer Questions

Question 1.
Define Business finance.
Answer:
“Finance is that business activity which is concerned with the acquisition and conservation of capital fund in meeting the financial needs and overall objectives of business enterprises.” – B.O. Wheeler

Question 2.
What is pledge?
Answer:
A customer transfers the possession of an article with the creditor (banker) and receives loan. Till the repayment of loan, the article is under the custody of the borrower. If the debtor fails to refund the loan, creditor (banker) will auction the article pawned and adjust the outstanding loan from the sale proceeds. This is known as pledge.

Question 3.
List sources of raising long – term and short – term finance.
Answer:
Sources of Short Term Finance:

1. Loans and Advances
2. Bank Overdraft
3. Discounting Bills of Exchange
4. Trade Credit
5. Pledge
6. Hypothecation
7. Mortgage
8. Loans Against the Securities
9. Clean Loan
10. Commercial Paper (CP)
11. Hire Purchase Finance
12. Factoring

Sources of Long Term Finance:

1. Shares (i) Equity Shares (ii) Preference Shares
2. Debentures
3. Retained Earnings
4. Public Deposits
5. Long Term Loan from Commercial Banks
6. The Loans from Financial Institutions

Question 4.
For which purpose fixed capital is needed in business?
Answer:
Fixed capital is needed for the purchase of plant, machinery, furniture, fixtures, vehicles, and all other assets. It helps to lay down the basic infrastructure on which business is supposed to stand and flourish in a long run. It is also used to purchase intangible assets like patents, copyrights, goodwill, etc.

Question 5.
What do you mean by the working capital requirement of a business?
Answer:
Working capital requirements include the purchase of raw materials, payment of salary and. wages, incurring operating expenses like telephone bills, carriage inward and outward, electricity charges, premium, stationery, etc.

IV. Long Answer Questions

Question 1.
List out the various sources of financing.
Answer:
The various sources of business finance can be classified into three categories on the basis of

• period basis
• ownership basis
• source of generation basis.

On the basis of the period:

1. Short term finance
2. Medium-term finance
3. Long term finance

Sources of Short Term Finance:

1. Loans and Advances
2. Bank Overdraft
3. Discounting Bills of Exchange
4. Trade Credit
5. Pledge
6. Hypothecation
7. Mortgage
8. Loans Against the Securities
9. Clean Loan
10. Commercial Paper (CP)
11. Hire Purchase Finance
12. Factoring

Sources of Medium Term Finance:

1. Loans from Banks
2. Loan from Financial Institutions
3. Lease Financing

Sources of Long Term Finance:

1. Shares
   • Equity Shares
   • Preference Shares
2. Debentures
3. Retained Earnings
4. Public Deposits
5. Long Term Loan from Commercial Banks
6. The Loans from Financial Institutions

On the Basis of Ownership:

1. Owner’s Funds
2. Borrowed Funds

On the Basis of Generation of Funds:

1. Internal Sources
2. External Sources

Question 2.
What are the different types of short term finances given by commercial banks?
Answer:
Loans and Advances:
The loan is a direct advance made in a lump sum which is credited to a separate loan account in the name of the borrower. The borrower can withdraw the entire amount in cash immediately.

It can be repaid in one or more installments. But the interest on loans and advances is calculated on the whole of the amount borrowed right from the date of sanction. It may be secured or unsecured.

Bank Overdraft:
Bank overdraft refers to an arrangement whereby the bank allows the customers to overdraw the required amount from its current deposit account within a specified limit. Interest is charged only on the amount actually overdrawn.

Discounting Bills of Exchange:
When goods are sold on credit, the suppliers generally draw bills of exchange upon customers who are required to accept it. The duration of such bills of exchange may be ranging from 15 days to 180 days. Discounting bills of exchange refers to an act of selling a bill to obtain payment for it before its maturity.

Trade Credit:
Trade credit is the credit extended by one trader to another for the purpose of purchasing goods and services. Purchaser need not pay money immediately after the purchase. Trade credit is very simple and convenient method of raising short term finance. There is no formality involved in availing this facility. There is no need to give any security for trade credit. It is said to be more economical than bank loans.

Pledge:
A customer transfers the possession of an article with the creditor (banker) and receives a loan. Till the repayment of the loan, the article is under the custody of the borrower. If the debtor fails to refund the loan, the creditor (banker) will auction the article pawned and adjust the outstanding loan from the sale proceeds.

Question 3.
Write short notes on

1. Retained Earnings
2. Lease financing

Answer:
1. Retained Earnings:
Retained earnings refer to the process of retaining a part of net profit year after year and reinvesting them in the business. It is also termed as ploughing back of profit. An individual would like to save a portion of his/her income for meeting the contingencies and growth needs.

Similarly, a profit-making company would retain a portion of the net profit in order to finance its growth and expansion in near future. It is described to be the most convenient and economical method of finance.

2. Lease Financing:
Lease financing denotes procurement of assets through lease. For many small and medium enterprises, the acquisition of plant and equipment and other permanent assets will be difficult in the initial stages. In such a situation Leasing is helping them to a greater extent.

Leasing here refers to the owning of an asset by any individual or a corporate body which will be given for use to another needy business enterprise on a rental basis. The firm which owns the asset is called ‘Lessor’ and the business enterprise which hires the asset is called ‘Lessee’.

The contract is called ‘Lease’. The lessee pays a fixed rent on agreed basis to the lessor for the use of the asset. The terms and conditions like lease period, rent fixed, mode of payment and allocation of maintenance, are mentioned in the lease contract.

At the end of the lease period, the asset goes back to the lessor. Alternatively lessee can own the asset taken on lease by paying the balance of price of asset concerned to lessor. Hence lease finance is a popular method of medium term business finance.

Question 4.
Write short notes on

1. Owner’s funds
2. Borrowed funds

Answer:
1. Owner’s funds:
Owner’s funds mean funds which are provided by the owner of the enterprises who may be an individual or partners or shareholders of a company. The profits reinvested in the business (ploughing back of profit or retained earnings) come under the owner’s funds. These funds are not required to be refunded during the lifetime of a business enterprise. It provides the owner the right to control the management of the enterprise.

2. Borrowed funds :
The term ‘borrowed funds’ denotes the funds raised through loans or borrowings. For example debentures, loans from banks and financial institutions, public deposits, trade credit, lease financing, commercial papers, factoring, etc. represent borrowed funds.

• These borrowed sources of funds provide a specific period before which the fund is to be returned.
• The borrower is under a legal obligation to pay interest at the given rate at regular intervals to the lender.
• Generally borrowed funds are obtained on the security of certain assets like bonds, land, building, stock, vehicles, machinery, documents of title to the goods, and the like.

Question 5.
Explain any four personal investment avenues.
Answer:
1. Public Provident Fund (PPF):
It is the safest long-term investment option for investors in India. It is totally tax-free. PPF account can be opened in a bank or post office. The money deposited cannot be withdrawn before 15 years and an investor can earn compound interest from this account.

However, the investor can extend the time frame for the next five years if the investor does not opt to withdraw the amount matured for payment at the maturity date. PPF investor can take a loan against PPF account when he/she experiences financial difficulties.

2. Mutual Funds:
An individual investor who wants to invest in equities and bonds with a balance of risk and return generally can invest in mutual funds. Nowadays people invest in stock markets through a mutual fund. A systematic investment plan is one of the best investment options in India.

3. Direct Equity or Share Purchase:
An individual can opt for investment in shares. But he has to analyze the market price of various shares traded in the stock exchange, the reputation of the company, consistency in the payment of dividends, the nature of the project undertaken by the company, growth prospects of the industry in which a company is operating, before investing in shares. If the investment is made for a long time, it may yield a good return.

4. Real Estate Investment:
Real estate is one of the fastest-growing sectors in India. Buying, a flat or plot is supposed to be the best decision amongst the investment options. The value of the real asset may increase substantially depending upon the area of location and other support facilities available therein.

Samacheer Kalvi 11th Commerce Sources of Business Finance Additional Questions and Answers

I. Choose the Correct Answer:

Question 1.
Long term finance ………………
(a) more than 5 years
(b) above I year but below 5 years
(c) more than one year but below 3 years
(d) within one year
Answer:
(a) more than 5 years

Question 2.
The various sources of business finance can be classified into ………………
(a) three
(b) two
(c) four
(d) five
Answer:
(a) three

Question 3.
Business people hypothecate goods or equipment to get ……………… type of loan. It is a loan taken on the security of a movable assets.
(a) Hypothecation
(b) Pledge
(c) Trade credit
(d) Bank overdraft
Answer:
(a) Hypothecation

Question 4.
……………… is a type of loan taken from the bank by lodging with the bank title deeds of immovable assets like land and building.
(a) Hypothecation
(b) Mortgage
(c) Clean loan
(d) Factoring
Answer:
(b) Mortgage

Question 5.
Source of Medium Term Finance is ………………
(a) share
(b) debentures
(c) Bank overdraft
(d) lease finance
Answer:
(d) lease finance

Question 6.
Which one is the internal source?
(a) Retained earnings
(b) Shares
(c) Debentures
(d) Public deposits
Answer:
(a) Retained earnings

Question 7.
Which one are the owner’s funds?
(a) Debentures
(b) Loan from banks
(c) Equity shares
(d) Commercial papers
Answer:
(c) Equity shares

II. Very Short Answer Questions

Question 1.
What do you mean by Bonds?
Answer:
Bonds are one of the ideal investment options for those investors who would like to invest their hard-earned money safely. Bonds are issued both by government and public and private sector companies and financial institutions.

Question 2.
What are Mutual Funds?
Answer:
An individual investor who wants to invest in equities and bonds with a balance of risk and return generally can invest in mutual funds. Nowadays people invest in stock markets through a mutual fund.

Question 3.
What is Commercial Paper (CP)?
Answer:
Commercial paper (CP) is an unsecured money market instrument in the form of a promissory note. It was introduced in India in 1990 under Section 45 W of the Reserve Bank of India Act.

III. Short Answer Questions

Question 1.
Mention any three significance of business finance.
Answer:

1. A firm with adequate business finance can easily start any business venture.
2. Business finance helps the business organisation to purchase raw materials from the supplier easily to produce goods.
3. The business firm can meet financial liabilities like prompt payment of salary and wages, expenses, etc., in time with the help of sound financial support.

Question 2.
What is meant by preference shares?
Answer:
The fund raised by the issue of preference shares is called preference share capital. Preference shares are those shares which enjoy priority regarding payment of dividend at a fixed rate out of the net profits of the company. They will get their dividend every year before any dividend is paid to equity shareholders.

They will have a right to get their settlement before the claims of equity shareholders are settled at the time of liquidation of the company. However, they do not have voting rights.

Case Study

Gokul Steel Ltd is a large and creditworthy company that manufactures steel for the Indian market. It now wants to cater to the Asian market and decides to invest in new hi-tech machines. Since the investment is large, it requires long term finance. It decides to raise funds by issuing equity shares. The issue of equity shares involves huge floatation costs. To meet the expenses of floatation cost, the company decides to tap the money market.

1. Name and explain the money-market instrument the company can use for the above purpose.
2. What is the duration for which the company can get funds through the instrument?
3. State any other purpose for which this instrument can be used.

Answer:
The company can issue equity shares with premium. If the issue of the shares at a premium value, the share can be subsided easily because the company has already created a creditworthy less. So it can easily raise their capital and get more funds and solve the huge requirement of funds.

1. NSE (National Stock Exchange) – Gokul Steel Ltd.
   BSE (Business Stock Exchange) – Equity shares
2. Equity share capital for long term source of the company. One year, two years, or the life of the company.
3. In the future, the shares can be used to change the value of shares. In the future, this investment can be surrendered and get back the cash also with dividends.

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Tamilnadu Samacheer Kalvi 12th Economics Solutions Chapter 5 Monetary Economics

Samacheer Kalvi 12th Economics Monetary Economics Text Book Back Questions and Answers

Part – A
Multiple Choice Questions.

Question 1.
The RBI Headquarters is located at ………………………
(a) Delhi
(b) Chennai
(c) Mumbai
(d) Bengalore
Answer:
(c) Mumbai

Question 2.
Money is ………………………
(a) Acceptable only when it has intrinsic value
(b) Constant in purchasing power
(c) The most liquid of all assets
(d) Needed for allocation of resources
Answer:
(c) The most liquid of all assets

Question 3.
Paper currency system is managed by the ………………………
(a) Central Monetary authority
(b) State Government
(c) Central Government
(d) Banks
Answer:
(a) Central Monetary authority

Question 4.
The basic distinction between M₁ and M₂ is with regard to ………………………
(a) Post office deposits
(b) Time deposits of banks
(c) Saving deposits of banks
(d) Currency
Answer:
(b) Time deposits of banks

Question 5.
Irving Fisher’s Quantity Theory of Money was popularized in ………………………
(a) 1908
(b) 1910
(c) 1911
(d) 1914
Answer:
(c) 1911

Question 6.
MV stands for ………………………
(a) Demand for money
(b) Supply of legal tender money
(c) Supply of bank money
(d) Total supply of money
Answer:
(b) Supply of legal tender money

Question 7.
Inflation means ………………………
(a) Prices are rising
(b) Prices are falling
(c) Value of money is increasing
(d) Prices are remaining the same
Answer:
(a) Prices are rising

Question 8.
………………………. inflation results in a serious depreciation of the value of money.
(a) Creeping
(b) Walking
(c) Running
(d) Hyper
Answer:
(d) Hyper

Question 9.
…………………… inflation occurs when general prices of commodities increases due to increase in production costs such as wages and raw materials.
(a) Cost – push
(b) Demand pull
(c) Running
(d) Galloping
Answer:
(a) Cost – push

Question 10.
During inflation, who are the gainers?
(a) Debtors
(b) Creditors
(c) Wage and salary earners
(d) Government
Answer:
(a) Debtors

Question 11.
…………………… is a decrease in the rate of inflation.
(a) Disinflation
(b) Deflation
(c) Stagflation
(d) Depression
Answer:
(a) Disinflation

Question 12.
Stagflation combines the rate of inflation with ……………………
(a) Stagnation
(b) Employment
(c) Output
(d) Price
Answer:
(a) Stagnation

Question 13.
The study of alternating fluctuations in business activity is referred to in Economics as ……………………
(a) Boom
(b) Recession
(c) Recovery
(d) Trade cycle
Answer:
(d) Trade cycle

Question 14.
During depression the level of economic activity becomes extremely ……………………
(a) High
(b) Bad
(c) Low
(d) Good
Answer:
(c) Low

Question 15.
“Money can be anything that is generally acceptable as a means of exchange and that the same time acts as a measure and a store of value”, This definition was given by ……………………
(a) Crowther
(b) A.C.Pigou
(c) F.A.Walker
(d) Francis Bacon
Answer:
(a) Crowther

Question 16.
Debit card is an example of ……………………
(a) Currency
(b) Paper currency
(c) Plastic money
(d) Money
Answer:
(c) Plastic money

Question 17.
Fisher’s Quantity Theory of money is based on the essential function of money as ……………………
(a) Measure of value
(b) Store of value
(c) Medium of exchange
(d) Standard of deferred payment
Answer:
(c) Medium of exchange

Question 18.
V in MV = PT equation stands for ……………………
(a) Volume of trade
(b) Velocity of circulation of money
(c) Volume of transaction
(d) Volume of bank and credit money
Answer:
(b) Velocity of circulation of money

Question 19.
When prices rise slowly, we call it ……………………
(a) Galloping inflation
(b) Mild inflation
(c) Hyper inflation
(d) Deflation
Answer:
(b) Mild inflation

Question 20.
…………………… inflation is in no way dangerous to the economy.
(a) Walking
(b) Running
(c) Creeping
(d) Galloping
Answer:
(c) Creeping

Part – B
Answer The Following Questions In One or Two Sentences.

Question 21.
Define Money?
Answer:

1. Many economists developed definition for money. Among these, definitions of Walker and Crowther are given below:
   “Money is, what money does ” – Walker.
2. “Money can be anything that is generally acceptable as a means of exchange and at the same time acts as a measure and a store of value”. – Crowther
3. Money is anything that is generally accepted as payment for goods and services and repayment of debts and that serves as a medium of exchange.
4. A medium of exchange is anything that is widely accepted as a means of payments.

Question 22.
What is barter?
Answer:

1. Before money was invented, exchange took place by Barter, that is, commodities and services were directly exchanged for other commodities and services.
2. Such exchange of goods for goods was known as “Barter Exchange” or “Barter System”.

Question 23.
What is commodity money?
Answer:

1. After the barter system and commodity money system, modem money systems evolved.
2. Among these, metallic standard is the premier one. ,
3. Under metallic standard, some kind of metal either gold or silver is used to determine the standard value of the money and currency.
4. Standard coins made out of the metal are the principal coins used under the metallic standard.
5. These standard coins are full bodied or full weighted legal tender.
6. Their face value is equal to their intrinsic metal value.

Question 24.
What is gold standard?
Answer:

1. Gold Standard is a system in which the value of the monetary unit or the standard currency is directly linked with gold.
2. The monetary unit is defined in terms of a certain weight of gold.
3. The purchasing power of a unit of money is maintained equal to the value of a fixed weight of gold.

Question 25.
What is plastic money? Give example?
Answer:

1. The latest type of money is plastic money.
2. Plastic money is one of the most evolved forms of financial products.
3. Plastic money is an alternative to the cash or the standard “money”.
4. Plastic money is a term that is used predominantly in reference to the hard plastic cards used every day in place of actual bank notes.
5. Plastic money can come in many different forms such as Cash cards, Credit cards, Debit cards, Pre-paid Cash cards, Store cards, Forex cards and Smart cards.
6. They aim at removing the need for carrying cash to make transactions.

Question 26.
Define inflation?
Answer:

1. Inflation is a consistent and appreciable rise in the general price level.
2. In other words, inflation is the rate at which the general level of prices for goods and services is rising and consequently the purchasing power of currency is falling.
3. “Too much of Money chasing too few goods” – Coulbourn
4. “A state of abnormal increase in the quantity of purchasing power” – Gregorye

Question 27.
What is Stagflation?
Answer:
Stagflation is a combination of stagnant economic growth, high unemployment and high inflation.

Part – C
Answer The Following Questions In One Paragraph.

Question 28.
Write a note on metallic money?
Answer:

1. After the barter system and commodity money system, modem money systems evolved.
2. Among these, metallic standard is the premier one.
3. Under metallic standard, some kind of metal either gold or silver is used to determine the standard value of the money and currency.
4. Standard coins made out of the metal are the principal coins used under the metallic standard. Monetary Economics 93
5. These standard coins are full bodied or Ml weighted legal tender.
6. Their face value is equal to their intrinsic metal value.

Question 29.
What is money supply?
Answer:

1. Money supply means the total amount of money in an economy.
2. It refers to the amount of money which is in circulation in an economy at any given time.
3. Money supply plays a crucial role in the determination of price level and interest rates.
4. Money supply viewed at a given point of time is a stock and over a period of time it is a flow.

Question 30.
What are the determinants of money supply?
Answer:
Determinants of Money Supply:

1. Currency Deposit Ratio (CDR); It is the ratio of money held by the public in currency to that they hold in bank deposits.
2. Reserve deposit Ratio (RDR); Reserve Money consists of two things (a) vault cash in banks and (b) deposits of commercial banks with RBI.
3. Cash Reserve Ratio (CRR); It is the fraction of the deposits the banks must keep with RBI. (z’v) Statutory Liquidity Ratio (SLR); It is the fraction of the total demand and time deposits of the commercial banks is the form of specified liquid assests.

Question 31.
Write the types of inflation?
Answer:
The four types of inflation are –
1. Creeping Inflation:
Creeping inflation is slow-moving and very mild. The rise in prices will not be perceptible but spread over a long period. This type of inflation is in no way dangerous to the economy. This is also known as mild inflation or moderate inflation.

2. Walking Inflation:
When prices rise moderately and the annual inflation rate is a single digit . (3% – 9%), it is called walking or trolling inflation.

3. Running Inflation:
When prices rise rapidly like the running of a horse at a rate of speed of 10% – 20% per annum, it is called running inflation.

4. Galloping inflation:
Galloping inflation or hyper inflation points out to unmanageably high inflation rates that run into two or three digits. By high inflation the percentage of the same is almost 20%
to 100% from an overall perspective.

Other types of inflation (on the basis of inducement):

1. Currency inflation:
The excess supply of money in circulation causes rise in price level.

2. Credit inflation:
When banks are liberal in lending credit, the money supply increases and thereby rising prices. .

3. Deficit induced inflation:
The deficit budget is generally financed through printing of currency by the Central Bank. As a result, prices rise.

4. Profit induced inflation:
When the firms aim at higher profit, they fix the price with higher margin. So prices go up.

5. Scarcity induced inflation:
Scarcity of goods happens either due to fall in production (e.g. farm goods) or due to hoarding and black marketing. This also pushes up the price. (This has happened is Venezula in the year 2018).

6. Tax induced inflation:
Increase in indirect taxes like excise duty, custom duty and sales tax may lead to rise in price (e.g. petrol and diesel). This is also called taxflation.

Question 32.
Explain Demand-pull and Cost push inflation?
Answer:
Demand – Pull Vs Cost – Push inflation:

1. Demand – Pull Inflation:
Demand and supply play a crucial role in deciding the inflation levels in the society at all points of time. For instance, if the demand is high for a product and supply is low, the price of the products increases.

2. Cost – Push Inflation:
When the cost of raw materials and other inputsrises inflation results. Increase in wages paid to labour also leads to inflation.

Question 33.
State Cambridge equations of value of money?
Answer:
Cambridge Approach (Cash Balances Approach):

1. Marshall’s Equation:
The Marshall equation is expressed as:
M = KPY
Where
M is the quantity of money Y is the aggregate real income of the community . P is Purchasing Power of money
K represents the fraction of the real income which the public desires to hold in the form of money.
Thus, the price level P = M/KY or the value of money (The reciprocal of price level) is 1/P = KY/M
The value of money in terms of this equation can be found out by dividing the total quantity of goods which the public desires to holdout of the total income by the total supply of money. According to Marshall’s equation, the value of money is influenced not only by changes in M, but also by changes in K.

2. Keynes’Equation
Keynes equation is expressed as:
n = pk (or) p = n / k
Where
n is the total supply of money p is the general price level of consumption goods
k is the total quantity of consumption units the people decide to keep in the form of cash, Keynes indicates that K is a real balance, because it is measured in terms of consumer goods. According to Keynes, peoples’ desire to hold money is unaltered by monetary authority. So, price level and value of money can be stabilized through regulating quantity of money (n) by the monetary authority.
Later, Keynes extended his equation in the following form:
n = p (k + rk’) or p = n / (k + rk’)
Where,
n = total money supply p = price level of consumer goods
k = peoples’ desire to hold money in hand (in terms of consumer goods) in the total income of them
r = cash reserve ratio
k’ = community’s total money deposit in banks, in terms of consumers goods.
In this extended equation also, Keynes assumes that, k, k’ and r are constant. In this situation, price level (P) is changed directly and proportionately changing in money volume (n).

Question 34.
Explain disinflation?
Answer:
Disinflation:
Disinflation is the slowing down the rate of inflation by controlling the amount of credit (bank loan, hire purchase) available to consumers without causing more unemployment. Disinflation may be defined as the process of reversing inflation without creating unemployment or reducing output in the economy.

Part – D
Answer the following questions in one page.

Question 35.
Illustrate Fisher’s Quantity theory of money?
Answer:
(a) Fisher’s Quantity Theory of Money:
The quantity theory of money is a very old the¬ory. It was first propounded in 1588 by an Italian economist, Davanzatti. But, the credit for popularizing this theory in recent years rightly belongs to the well-known American economist, Irving Fisher who published his book, ‘The Purchasing Power of Money” in 1911. He gave it a quantitative form in terms of his famous “Equation of Exchange”.
The general form of equation given by Fisher is –
MV = PT

1. Fisher points out that in a country during any given period of time, the total quantity of money (MV) will be equal to the total value of all goods and services bought and sold (PT). MV = PT
Supply of Money = Demand for Money

2. This equation is referred to as “Cash Transaction Equation”.
Where M = Money Supply/quantity of Money
V = Velocity of Money
P = Price level
T = Volume of Transaction.
It is expressed as P = MV / T which implies that the quantity of money determines the price level and the price level in its turn varies directly with the quantity of money, provided ‘V’ and ‘T’ remain constant.

3. According to Marshall, peoples desire to hold money (the coefficient, K) is more powerful in determination of money, rather than quantity of money (M). So, peoples’ desire to hold money is a determinant of value of money.

4. The above equation considers only currency money. But, in a modem economy, bank’s demand deposits or credit money and its velocity play a vital part in business. Therefore, Fisher extended his original equation of exchange to include bank deposits M, and its velocity Vr The revised equation was:
PT = MV + M₁V₁
P = \(\frac { MV+M_{ 1 }V_{ 1 } }{ T } \)

5. From the revised equation, it is evident, that the price level is determined by (a) the quantity of money in circulation ‘M’ (b) the velocity of circulation of money ‘V’ (c) the volume of bank credit money M₁ (d) the velocity of circulation of credit money V₁, and the volume of trade (T)

Diagramatic Illustration:

Quantity of Money

1. Figure (A) shows the effect of changes in the quantity of money on the price level. When the quantity of money is OM, the price level is OP. When the quantity of money is doubled to OM₂, the price level is also doubled to OP₂. Further, when the quantity of money is increased four – fold to OM₄, the price level also increases by four times to OP₄. This relationship is expressed by the curve OP = f (M) from the origin at 45°.

2. Figure (B), shows the inverse relation between the quantity of money and the value of money, where the value of money is taken on the vertical axis. When the quantity of money is OM₁, the value of money is 01 / P₁. But with the doubling of the quantity of money to OM₂, the value of money becomes one – half of what it was before, (01 / P₂). But, with the quantity of money increasing by four – fold to OM₄, the value of money is reduced by 01 / P₄. This inverse relationship between the quantity of money and the value of money is shown by downward sloping curve 1 / OP = f (M).

Question 36.
Explain the functions of money?
Answer:

1. Primary Functions:

(I) Money as a medium of exchange:
This is considered as the basic function of money. Money has the quality of general acceptability, and all exchanges take place in terms of money.

(II) Money as a measure of value:
The second important function of money is that it measures the value of goods and services. In other words, the prices of all goods and services are expressed in terms of money. Money is thus looked upon as a collective measure of value.

2. Secondary Functions:

(I) Money as a Store of value:
Savings done in terms of commodities were not permanent. But, with the invention of money, this difficulty has now disappeared and savings are now done in terms of money. Money also serves as an excellent store of wealth, as it can be easily converted into other marketable assets, such as, land, machinery, plant etc.

(II) Money as a Standard of Deferred Payments:
Borrowing and lending were difficult problems under the barter system. In the absence of money, the borrowed amount could be returned only in terms of goods and services. But the modem money – economy has greatly facilitated the borrowing and lending processes.

(III) Money as a Means of Transferring Purchasing Power:
The field of exchange also went on extending with growing economic development. The exchange of goods is now extended to distant lands.

3. Contingent Functions:

(I) Basis of the Credit System:
Money is the basis of the Credit System. Business transactions are either in cash or on credit.

(II) Money facilitates distribution of National Income:
The task of distribution of national income was exceedingly complex under the barter system.

(III) Money helps to Equalize Marginal Utilities and Marginal Productivities:
Consumer can obtain maximum utility only if he incurs expenditure on various commodities in such a manner as to equalize marginal utilities accruing from them. Now in equalizing these marginal utilities, money plays an important role, because the prices of all commodities are expressed in money.

(IV) Money Increases Productivity of Capital:
Money is the most liquid form of capital. In other words, capital in the form of money can be put to any use.

4. Other Functions:

(I) Money helps to maintain Repayment Capacity:
Money possesses the quality of general acceptability. To maintain its repayment capacity, every firm has to keep assets in the form of liquid cash. The firm ensures its repayment capacity with money.

(II) Money represents Generalized Purchasing Power:
Purchasing power kept in terms of money can be put to any use. It is not necessary that money should be used only for the purpose for which it has been served.

(III) Money gives liquidity to Capital:
Money is the most liquid form of capital. It can be put to any use.

Question 37.
What are the causes and effects of inflation on the economy?
Answer:
Causes of Inflation:
The main causes of inflation in India are as follows:

1. Increase in Money Supply:
Inflation is caused by an increase in the supply of money which leads to increase in aggregate demand. The higher the growth rate of the nominal money supply, the higher is the rate of inflation.

2. Increase in Disposable Income:
When the disposable income of the people increases, it raises their demand for goods and services. Disposable income may increase with the rise in national income or reduction in taxes or reduction in the saving of the people.

3. Increase in Pubiic Expenditure:
Government activities have been expanding due to developmental activities and social welfare programmes. This is also a cause for price rise.

4. Increase in Consumer Spending:
The demand for goods and services increases when they are given credit to buy goods on hire-purchase and installment basis.

5. Cheap Monetary Policy:
Cheap monetary policy or the policy of credit expansion also leads to increase in the money supply which raises the demand for goods and services in the economy.

6. Deficit Financing:
In order to meet its mounting expenses, the government resorts to deficit financing by borrowing from the public and even by printing more notes.

7. Black Assests, Activities and Money:
The existence of black money and black assests due to corruption, tax evasion etc., increase the aggregate demand. People spend such money, lavishly. Black marketing and hoarding reduces the supply of goods.

8. Repayment of Public Debt:
Whenever the government repays its past internal debt to the public, it leads to increase in the money supply with the public.

9. Increase in Exports:
When exports are encouraged, domestic supply of goods decline. So prices rise.

Effects of Inflation:
The effects of inflation can be classified into two heads:

1. Effects on Production and
2. Effects on Distribution.

1. Effects on Production:
When the inflation is very moderate, it acts as an incentive to traders and producers. This is particularly prior to full employment when resources are not fully utilized. The profit due to rising prices encourages and induces business class to increase their investments in production, leading to generation of employment and income.

(I) However, hyper – inflation results in a serious depreciation of the value of money.

(II) When the value of money undergoes considerable depreciation, this may even drain out the foreign capital already invested in the country.

(III) With reduced capital accumulation, the investment will suffer a serious set-back which may have an adverse effect on the volume of production in the country.

(IV) Inflation also leads to hoarding of essential goods both by the traders as well as the consumers and thus leading to still hiher inflation rate.

(V) Inflation encourages investment in speculative activities rather than productive purposes.

2. Effects on Distribution:

1. Debtors and Creditors:
During inflation, debtors are the gainers while the creditors are losers.

2. Fixed – income Groups:
The fixed income groups are the worst hit during inflation because their incomes being fixed do not bear any relationship with the rising cost of living.

3. Entrepreneurs:
Inflation is the boon to the entrepreneurs whether they are manufacturers, traders, merchants or businessmen, because it serves as a tonic for business enterprise.

4. Investors:
The investors, who generally invest in fixed interest yielding bonds and securities have much to lose during inflation.

Question 38.
Describe the phases of Trade cycle?
Answer:
Phases of Trade Cycle
The four different phases of trade cycle is referred to as

1. Boom
2. Recession
3. Depression and
4. Recovery. These are illustrated in the figure:

Phases of Trade Cycle:

1. Boom or Prosperity Phase:
The full employment and the movement of the economy beyond full employment is characterized as boom period.

1. During this period, there is hectic activity in economy.
2. Money wages rise, profits increase and interest rates go up.
3. The demand for bank credit increases and there is all – round optimism.

2. Recession:

1. The turning point from boom condition is called recession.
2. This happens at higher rate, than what was earlier.
3. Generally, the failure of a company or bank bursts the boom and brings a phase of recession.
4. Investments are drastically reduced, production comes down and income and profits decline.
5. There is panic in the stock market and business activities show signs of dullness.
6. Liquidity preference of the people rises and money market becomes tight.

3. Depression:

1. During depression the level of economic activity becomes extremely low.
2. Firms incur losses and closure of business becomes a common feature and the ultimate result is unemployment.
3. Interest prices, profits and wages are low. The agricultural class and wage earners would be worst hit.
4. Banking institutions will be reluctant to advance loans to businessmen.
5. Depression is the worst phase of the business cycle.
6. Extreme point of depression is called as “trough”, because it is a deep point in business cycle.

4. Recovery:

1. After a period of depression, recovery sets in.
2. This is the turning point from depression to revival towards upswing.
3. It begins with the revival of demand for capital goods.
4. Autonomous investments boost the activity.
5. The demand slowly picks up and in due course the activity is directed towards the upswing with more production, profit, income, wages and employment.
6. Recovery may be initiated by innovation or investment or by government expenditure (autonomous investment).

Samacheer Kalvi 12th Economics Consumption and Investment Functions Additional Questions

Part – A
I. Multiple Choice Questions.

Question 1.
During Inflation?
(a) Business men gain
(b) Wage earners gain
(c) Salary gain
(d) Renters gain
Answer:
(a) Business men gain

Question 2.
Galloping Inflation is also known as –
(a) Deflation
(b) Persistent Inflation
(c) Stagflation
(d) Cost – push Inflation
Answer:
(b) Persistent Inflation

Question 3.
The modem economy is described as –
(a) Demand Economy
(b) Supply Economy
(c) Money Economy
(d) Wage Economy
Answer:
(c) Money Economy

Question 4.
The term ………………………… refers to a phase or policy when interest rates are high.
(a) Purchasing money
(b) Power money
(c) Fiat money
(d) Dear money
Answer:
(d) Dear money

Question 5.
Currency notes in circulation are referred to as –
(b) Fiat money
(c) Value of money
(d) Cheap money
Answer:
(b) Fiat money

Question 6.
What is the name of inflation without a rise in price level?
(a) Repressed Inflation
(b) Hyper Inflation
(c) Galloping Inflation
(d) Cost – Push Inflation
Answer:
(a) Repressed Inflation

Question 7.
Give the example of a country that experienced hyper Inflation?
(a) India
(b) China
(c) Germany
(d) Africa
Answer:
(c) Germany

Question 8.
Which is the most important function of money?
(a) Measure of value
(b) Store of value
(c) Medium of exchange
(d) Standard of deferred payments
Answer:
(c) Medium of exchange

Question 9.
What is the other name for “Equation of Exchange”?
(a) Fisher’s Equation
(b) Keynes Equation
(c) Marshall’s Equation
(d) Equation of Exchange
Answer:
(a) Fisher’s Equation

Question 10.
What is the cheap money policy?
(a) High rates of Interest
(b) Low rates of Interest
(c) Medium rates of Interest
(d) Very high rates of Interest
Answer:
(b) Low rates of Interest

Question 11.
Monetary policy is controlled by –
(a) Central bank
(b) State Government
(c) Private sector
(d) Central Government
Answer:
(d) Central Government

Question 12.
………………………… is usually effective for controlling inflation.
(a) Monetary policy
(b) RBI
(c) State Government
(d) Central government
Answer:
(a) Monetary policy

Question 13.
Monetary policy is usually effective in controlling –
(a) Bank
(b) Inflation
(c) Deflation
(d) Stagflation
Answer:
(b) Inflation

Question 14.
Money acts as a common measure of –
(a) Reserve money
(b) Fiat money
(c) Value
(d) Broad money
Answer:
(c) Value

Question 15.
Bank rate is lowered during –
(a) Inflation
(b) Price
(c) Employment
(d) Deflation
Answer:
(d) Deflation

Question 16.
Under dear money policy is –
(a) Rate of Interest is low
(b) Rate of interest is high
(c) Bank rate is high
(d) Money supply is more
Answer:
(b) Rate of interest is high

Question 17.
M₃ is called –
(a) Narrow money
(b) Reserve money
(c) Broad money
(d) Fiat money
Answer:
(c) Broad money

Question 18.
Price mechanism plays a vital role in –
(a) Capitalism
(b) Socialism
(c) Mixed economy
(d) Traditional economy
Answer:
(a) Capitalism

Question 19.
“Money is what money does” ………………………… this definition was given by –
(a) Crowther
(b) Fisher
(c) Grasham
(d) Walker
Answer:
(d) Walker

Question 20.
Currency with the public is known as –
(a) M₁
(b) M₂
(C) M₃
(d) M₄
Answer:
(a) M₁

Question 21.
Cost – push inflation is induced by rising –
(a) Costs
(b) Money
(c) Broad money
(d) Inflation
Answer:
(b) Money

Question 22.
The direct exchange of goods for goods is known as –
(a) Money exchange
(b) Money transfer
(c) Barter System
(d) Barter goods
Answer:
(c) Barter System

Question 23.
Money is a matter of functions –
(a) One
(b) Two
(c) Three
(d) Four
Answer:
(d) Four

Question 24.
Deflation is a period marked by ………………………… prices.
(a) Increasing
(b) Falling
(c) Constant
(d) High
Answer:
(d) High

Question 25.
Dear money refers to ………………………… rate being high.
(a) Money
(b) Finance
(c) Interest
(d) Cost
Answer:
(c) Interest

II. Match the following and choose the correct answer by using codes given below

A. Deficit financing – (i) Monetary policy objectives
B. Store of value – (ii) Currency notes
C. Price stability – (iii) Causes inflation
D. Fiat money – (iv) Function of money
Codes:
(a) A (iii) B (iv) C (i) D (ii)
(b) A (ii) B (iii) C (iv) D (i)
(c) A (iv) B (ii) C (iii) D (i)
(d) A (i) B (iv) C (ii) D (iii)
Answer:
(a) A (iii) B (iv) C (i) D (ii)

Question 2.
A. Falling prices – (i) Black money
B. Government securities – (ii) Business loss
C. Bank rate – (iii) Open Market operation
D. Unaccounted money – (iv) Credit control
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (ii) B (iii) C (iv) D (i)
(c) A (iii) B (iv) C (i) D (ii)
(d) A (iv) B (i) C (ii) D (iii)
Answer:
(b) A (ii) B (iii) C (iv) D (i)

Question 3.
A. Checking Inflation – (i) Irving Fisher
B. Great Depression – (ii) Narrow money
C. Quantity theory of money – (iii) Wage freeze
D. M₁ – 1930
Codes:
(a) A (i) B (ii) C (iii) D (iv)
(b) A (iii) B (iv) C(i) D (ii)
(c) A (ii) B (iii) C (iv) D (i)
(d) A (iv) B (i) C (ii) D (iii)
Answer:
(b) A (iii) B (iv) C(i) D (ii)

Question 4.
A. Cheap money policy – (i) Purchasing money
B. Prices pushed – (ii) Creeping inflation
C. Value of money – (iii) Low rate of interest
D. Selective credit control – (iv) Moral suasion
Codes:
(a) A (iii) B (ii) C (i) D (iv)
(b) A (ii) B (i) C (iv) D (iii)
(c) A (iv) B (iii) C (ii) D (i)
(d) A (i) B (iv) C (iii) D (ii)
Answer:
(a) A (iii) B (ii) C (i) D (iv)

Question 5.
A. Galloping Inflation – (i) Money Act
B. M₃is called – (ii) Hyperinflation
C. Measure of value – (iii) Broad money
D. Deflation Codes – (iv) Bank rate
Codes:
(a) A (i) B (ii) C (iv) D (iii)
(b) A (iv) B (i) C (iii) D (ii)
(c) A (iii) B (iv) C (ii) D (i)
(d) A (ii) B (iii) C (i) D (iv)
Answer:
(d) A (ii) B (iii) C (i) D (iv)

III. State whether the statements are true or false.

Question 1.
(i) Inflation is taxation without legislation was said by Milton Friedman.
(ii) Money is the most liquid form of capital.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(a) Both (i) and (ii) are true

Question 2.
(i) “The purchasing power of money” was a book published by Irving Fisher in 1911.
(ii) The general form of equation given by Fisher is M = KPY.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(c) (i) is true but (ii) is false

Question 3.
(i) The study of alternating fluctuations in business activity is referred to in Economics as Trade cycle.
(ii) During depression the level of economic activity becomes extremely high.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(c) (i) is true but (ii) is false

Question 4.
(i) Creeping Inflation is in no way dangerous to the economy.
(ii) Debit card is an example of paper currency.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(c) (i) is true but (ii) is false

Question 5.
(i) MV = PT equation stands for volume of Trade.
(ii) Fisher’s Quantity Theory of money is based on the essential function of money as measure of value.

(a) Both (i) and (ii) are true
(b) Both (i) and (ii) are false
(c) (i) is true but (ii) is false
(d) (i) is false but (ii) is true
Answer:
(b) Both (i) and (ii) are false

IV. Which of the following is correctly matched:

Question 1.
(a) Medium of exchange – CRR
(b) Cash Reserve Ratio – Gold standard
(c) Goods exchange for goods – Barter system
(d) Full weighted legal tender – Plastic money
Answer:
(c) Goods exchange for goods – Barter system

Question 2.
(a) Depression – Starting stage
(b) Recession – Turning point from boom
(c) Boom – Economic activities
(d) Inflation – Hectic activity
Answer:
(b) Recession – Turning point from boom

Question 3.
(a) Store of value – Liquidity cash
(b) Deflation – Rise in price
(c) Trade cycle – Narrow money
(d) Quantity theory of money – J.M. Keynes
Answer:
(d) Quantity theory of money – J.M. Keynes

Question 4.
(a) The purchasing power of currency – Falling
(b) Monetary measures are adopted by – State bank
(c) The turning point from boom is – Inflation
(d) Money supply means the total – Inflation amount of money in – World
Answer:
(a) The purchasing power of currency – Falling

Question 5.
(a) The Marshall’s equation – MV = PT
(b) Cash Reserve Ratio – CRR
(c) Statutory Liquidity cash – SLC
(d) Functions of money – Money supply
Answer:
(b) Cash Reserve Ratio – CRR

Question 6.
(a) Barter System – Technology
(b) Gold Standard – Standard currency is directly linked with gold
(c) Plastic money – Money value
(d) Paper money – Smart card
Answer:
(b) Gold Standard – Standard currency is directly linked with gold

V. Which of the following is not correctly matched:

Question 1.
(a) Inflation – Rise in price
(b) Deflation – Fall in price
(c) Hyper Inflation – India
(d) Hyper deflation – Phases of Trade cycle
Answer:
(c) Hyper Inflation – India

Question 2.
(a) Currency Deposit Ratio – CDR
(b) Reserve Deposit Ratio – RDR
(c) Cash Reserve Ratio – CRR
(d) Statutory Liquidity Ratio – SRL
Answer:
(d) Statutory Liquidity Ratio – SRL

Question 3.
(a) M – Money supply / Quantity of money –
(b) V – Velocitu of money
(c) P – Price level
(d) T – Price rise slow moving
Answer:
(d) T – Price rise slow moving

Question 4.
(a) Creeping Inflation – Price rise slow moving
(b) Walking Inflation – Price rise moderately
(c) Running Inflation – Price rise rapidly running
(d) Galloping Inflation – Price rise very slow
Answer:
(d) Galloping Inflation – Price rise very slow

Question 5.
(a) Money supply – Central Bank
(b) Dear money policy – During Inflation
(c) Value of money – Purchasing power
(d) Black money – Narrow money
Answer:
(d) Black money – Narrow money

VI. Pick the odd one out.

Question 1.
The main functions of money can be classified
(a) Primary functions
(b) Secondary functions
(c) Contingent functions
(d) Territory functions
Answer:
(d) Territory functions

Question 2.
Money secondary functions are
(a) Money as a store of value
(b) Money as a standard of Deferred payments
(c) Money as a means of Transferring purchasing power
(d) Money as a modem exchange system
Answer:
(d) Money as a modem exchange system

Question 3.
Contingent functions are called
(a) Basis of the credit system
(b) Money facilitates distribution of state income
(c) Money’helps to equalize marginal utility
(d) Money increases productivity of capital
Answer:
(b) Money facilitates distribution of state income

Question 4.
RBI publishes information of money supply are
(a) M₂ = Currency coins and demand deposits
(b) M₂ = M₁ + Saving deposits with post office savings banks and Total Deposits
(c) M₃ = M₂ + Time deposits of all commercial and co – operative banks
(d) M₄ = M₃ + Total deposits with post offices
Answer:
(b) M₂ = M₁ + Saving deposits with post office savings banks and Total Deposits

Question 5.
Determinants of money supply are
(a) Consumer Deposit Ratio (CDR)
(b) Reserve Deposit Ratio (RDR)
(c) Cash Reserve Ratio (CRR)
(d) Statutory Liquidity Ratio (SLR)
Answer:
(a) Consumer Deposit Ratio (CDR)

Question 6.
Types of Inflation are
(a) Currency Inflation
(b) Credit Inflation
(c) Demand Induced Inflation
(d) Profit Induced Inflation
Answer:
(c) Demand Induced Inflation

Question 7.
The four different phases of trade cycle is referred to as
(a) Regression
(b) Recession
(c) Depression
(d) Recovery
Answer:
(a) Regression

VII. Assertion and Reason.

Question 1.
Assertion (A): Stagflation is a combination of stagnant economic growth, high unemployment and high inflation.
Reason (R): Stagflation is the slowing down the rate of inflation by controlling the amount of credit.

(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(c) ‘A’ is true but ‘R’ is false

Question 2.
Assertion (A): Keynes and Milton Friedman together suggested Monetary measures, Fiscal measures and other measures to prevent and control of inflation.
Reason (R): Keynes and Milton Friedman together suggested other measures are Short term and Long – term measures.

(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’

Question 3.
Assertion (A): A trade cycle refers to oscillations in aggregate economic activity particularly in employment, output, income, etc.
Reason (R): The four different phases of trade cycle is referred to Boom, Recession, Depression and Recovery.

(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’

Question 4.
Assertion (A): Fiscal policy is now recognized as an important instrument to tackle an inflationary situation.
Reason (R): Monetary measures are adopted by the central bank.

(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’

Question 5.
Assertion (A): Currency is created by the RBI and Union Government.
Reason (R): Bank deposits are created by commercial banks and co-operative banks.

(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’

Question 6.
Assertion (A): Recovery may be initiated by Money balance.
Reason (R): Recovery may be government expenditure.

(a) Both ‘A’ and ‘R’ are true and ‘R’ is the correct explanation to ‘A’
(b) Both ‘A’ and ‘R’ are true but ‘R’ is not the correct explanation to ‘A’
(c) ‘A’ is true but ‘R’ is false
(d) ‘A’ is false but ‘R’ is true
Answer:
(d) ‘A’ is false but ‘R’ is true

Part – B
Answer The Following Questions In One or Two Sentences.

Question 1.
Define “Silver Standard”?
Answer:
Silver Standard: The silver standard is a monetary system in which the standard economic unit of account is a fixed weight of silver. The silver standard is a monetary arrangement in which a country’s Government allows conversion of its currency into fixed amount of silver.

Question 2.
What is paper currency?
Answer:

1. The paper currency standard refers to the monetary system in which the paper currency notes issued by the Treasury or the Central Bank or both circulate as unlimited legal tender.
2. The paper standard is also known as managed currency standard.
3. The quantity of money in circulation is controlled by the monetary authority to maintain price stability.

Question 3.
Name the main functions of money?
Answer:

Question 4.
Write RBI publishes information alternative measures of money supply?
Answer:
RBI publishes information for four alternative measures of Money supply, namely M₂ , M₂ and M₃ and M₄
M₁ = Currency, coins and demand deposits
M₂ = M₁ + Savings deposits with post office savings banks
M₃ = M₂ + Time deposits of all commercial and cooperative banks.
M₄ = M₃ + Total deposits with Post offices.

Question 5.
Define “Currency symbol”?
Answer:
Currency Symbol ₹
The new symbol designed by D.Udaya Kumar, a post graduate of IIT Bombay was finally selected by the Union cabinet on 15th July, 2010. The new symbol, is an amalgamation of Devanagri ‘Ra’ and the Roman ‘R’ without the stem. The symbol of India rupee came into use on 15th July, 2010. After America, Britain, Japan, Europe Union. India is the 5th country to accept a unique currency symbol.

Question 6.
Write Fisher’s Quantity Theory of money equation?
Answer:

1. The general form of equation given by Fisher is MV = PT.
2. Fisher points out that in a country during any given period of time, the total quantity of money (MV) will be equal to the total value of all goods and services bought and sold (PT).
3. MV = PT

Question 7.
Define “Trade cycle”?
Answer:
“A trade cycle is composed of periods of good trade characterised by rising prices and low unemployment percentages altering with periods of bad trade characterised by falling prices and high unemployment percentages”.

Part – C
Answer The Following Questions In One Paragraph.

Question 1.
Write the meaning of Money supply?
Answer:
Meaning of Money Supply

1. In India, currency notes are issued by the Reserve Bank of India (RBI) and coins are issued by the Ministry of Finance, Government of India (GOI).
2. Besides these, the balance is savings, or current account deposits, held by the public in commercial banks is also considered money.
3. The currency notes are also called fiat money and legal tenders.

Question 2.
Explain the Deflation?
Answer:
Deflation:

1. The essential feature of deflation is falling prices, reduced money supply and unemployment.
2. Though falling prices are desirable at the time of inflation, such a fall should not lead to the fall in the level of production and employment.
3. But if prices fall from the level of full employment both income and employment will be adversely affected.

Question 3.
What is the meaning of trade cycle?
Answer:
Meaning of Trade Cycle:

1. A Trade cycle refers to oscillations in aggregate economic activity particularly in employment, output, income, etc.
2. It is due to the inherent contraction and expansion of the elements which energize the economic activities of the nation.
3. The fluctuations are periodical, differing in intensity and changing in its coverage.

Question 4.
Explain the Evolution of money?
Answer:
Barter System:

1. The introduction of money as a medium of exchange was orje of the greatest inventions of mankind.
2. Before money was invented, exchange took place by Barter, that is, commodities and services were directly exchanged for other commodities and services.
3. Under the barter system, buyers and sellers of commodities had to face a number of difficulties.
4. Surplus goods were exchanged for money which in turn was exchanged for other needed goods.
5. Goods like furs, skins, salt, rice, wheat, utensils, weapons, etc. were commonly used as money.
6. Such exchange of goods for goods was known as “Barter Exchange” or “Barter System”.

Question 5.
What is the meaning of Crypto currency?
Answer:
Crypto Currency:

1. A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a Central Bank.
2. Decentralised crypto currencies such as Bitcoin now provide an outlet for Personal Wealth that is beyond restriction and confiscation.

Question 6.
Explain the Trade cycle Depression?
Answer:
Depression:

1. During depression the level of economic activity becomes extremely low.
2. Firms incur losses and closure of business becomes a common feature and the ultimate result is unemployment.
3. Interest prices, profits and wages are low.
4. The agricultural class and wage earners would be worst hit.
5. Banking institutions will be reluctant to advance loans to businessmen.
6. Depression is the worst phase of the business cycle.
7. Extreme point of depression is called as “trough”, because it is a deep point in business cycle.
8. Any person fell down in deeps could not come out from that without other’s help.
9. Similarly, an economy fell down in trough could not come out from this without external help.
10. Keynes advocated that autonomous investment of the government alone can help the economy to come out from the depression.

Part – D
Answer The Following Questions In One Page.

Question 1.
Explain the Measures of control inflation?
Answer:
Measures to Control Inflation:
Keynes and Milton Friedman together suggested three measures to prevent and control of inflation.

1. Monetary measures
2. Fiscal measures (J.M. Keynes) and
3. Other measures.

1. Monetary Measures:

1. These measures are adopted by the Central Bank of the country.
2. They are
   • Increase in Bankrate
   • Sale of Government Securities in the Open Market
   • Higher Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)
   • Consumer Credit Control and
   • Higher margin requirements
   • Higher Repo Rate and Reverse Repo Rate.

2. Fiscal Measures:

1. Fiscal policy is now recognized as an important instrument to tackle an inflationary situation.
2. The major anti – inflationary fiscal measures are the following:
   Reduction of Government Expenditure and Public Borrowing and Enhancing taxation.

3. Other Measures:
These measures can be divided broadly into short – term and long – term measures.

(a) Short – term measures can be in regard to public distribution of scarce essential commodities through fair price shops (Rationing). In India whenever shortage of basic goods has been felt, the government has resorted to import so that inflation may not get triggered.

(b) Long – term measures will require accelerating economic growth especially of the wage goods which have a direct bearing on the general price and the cost of living. Some restrictions on present consumption may help in improving saving and investment which may be necessary for accelerating the rate of economic growth in the long run.

Question 2.
Briefly explain the Monetary Economics and money?
Answer:

1. Monetary Economics is a branch of economics that provides a framework for analyzing money and its functions as a medium of exchange, store of value and unit of account.
2. It examines the effects of monetary systems including regulation of money and associated financial institutions.
   Meaning
3. Money is anything that is generally accepted as payment for goods and services and repayment of debts and that serves as a medium of exchange.
4. A medium of exchange is anything that is widely accepted as a means of payments.
5. In recent years, the importance of credit has increased in all the countries of the world.
6. Credit instruments are used on an extensive scale.
7. The use of cheques, bills of exchange, etc. has gone up.
8. It should however, be remembered that money is the basis of credit.

Question 3.
Explain the Inflation Effects of production?
Answer:
Effects on Production: When the inflation is very moderate, it acts as an incentive to traders and producers. This is particularly prior to full employment when resources are not fully utilized. The profit due to rising prices encourages and induces business class to increase their investments in production, leading to generation of employment and income.

1. However, hyper – inflation results in a serious depreciation of the value of money and it discourages savings on the part of the public.

2. When the value of money undergoes considerable depreciation, this may even drain out the foreign capital already invested in the country.

3. With reduced capital accumulation, the investment will suffer a serious set – back which may have an adverse effect on the volume of production in the country. This may discourage entrepreneurs and business men from taking business risk.

4. Inflation also leads to hoarding of essential goods both by the traders as well as the consumers and thus leading to still higher inflation rate.

5. Inflation encourages investment in speculative activities rather than productive purposes.

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Samacheer Kalvi 11th Commerce Solutions Chapter 26 Export and Import Procedures

Samacheer Kalvi 11th Commerce Export and Import Procedures Textbook Exercise Questions and Answers

I. Choose the Correct Answer

Question 1.
EPC stands for ………………
(a) Export processing commission
(b) Export Promotion Council
(c) Export Carriage council
(d) Export Promotion Congress
Answer:
(b) Export Promotion Council

Question 2.
STC is an expansion for ………………
(a) State Training Centre
(c) State Trading Centre
(b) State Training Council
(d) State Trading Corporation
Answer:
(d) State Trading Corporation

Question 3.
An ……………… is a document prepared by the importer and sent to the exporter to buy the goods.
(a) Invoice
(b) Indent
(c) Enquiry
(d) Charter Party
Answer:
(b) Indent

Question 4.
The ……………… receipt is an acknowledgment of receipt of goods on the ship issued by the Captain.
(a) Shipping Bill
(b) Bill of Lading
(c) Mate’s Receipt
(d) Consular Invoice
Answer:
(b) Bill of Lading

Question 5.
The Exporters appoint the agent to fulfill the customs formalities.
(a) Clearing Agent
(b) Forwarding Agent
(c) Commission Agent
(d) Factor
Answer:
(b) Forwarding Agent

II. Very Short Answer Questions

Question 1.
What is meant by Indent?
Answer:
An indent is an order received from abroad for the export of goods. It contains information regarding the sale of goods. it is prepared in duplicate. One copy of the indent is sent to the exporters and the second one is retained by the importer and kept in his records.

Question 2.
Write any two export promotion institutions.
Answer:

1. Department of Commerce
2. Export Promotion Council (EPC)

Question 3.
Mention the types of Indent.
Answer:
A charter party is a formal agreement between the shipowner and the exporter under which the exporter hires an entire ship or a major part of the ship either for a particular voyage or for a specific time period when the shipping is heavy.

Question 4.
What is the Letter of credit?
Answer:
Mate’s Receipt is the document issued by the captain of the ship acknowledging the receipt of goods on board by him to the port of specified destination. This contains details like quantity of goods shipped, number of packages condition for packing, etc.

Where the Mate is satisfied with packing he/she issues a clean receipt. If he/ she is not satisfied with packing, he/she issues a foul receipt. The forwarding agent should seek to get a clean receipt. Otherwise, the insurance company will not bear liability for loss in case of foul receipt.

III. Short Answer Questions

Question 1.
What are the contents of Indents?
Answer:
Contents of an Indent:

1. Quantity of goods sent
2. Design of goods
3. Price
4. Nature of packing shipment
5. Mode of shipment
6. Period of delivery
7. Mode of payment

Question 2.
What is the meaning of a consular invoice?
Answer:
Where the customs duties are charged on the basis of value of goods at import’s port (ad – valorem basis), the customs officers are empowered to open the consignment to calculate duties. In order to avoid this problem exporter obtains consular invoice and sends it over to the importer.

Question 3.
What is meant by Charter Party?
Answer:
A charter party is a formal agreement between ship owner and the exporter under which exporter hires an entire ship or a major part of ship either for a particular voyage or for a specific time period when the shipping is heavy. The hiring of ship for specific voyage is called voyage charter while this hiring of entire ship for a specific time period is called time charter.

Question 4.
Write a short note on Mate’s receipt?
Answer:
Mate’s Receipt is the document issued by the captain of the ship acknowledging the receipt of goods on board by him to the port of specified destination. This contains details like quantity of goods shipped, number of packages condition for packing, etc.

Question 5.
What is Bill of Lading?
Answer:
Bill of Lading, refers to a document signed by ship owner or to his agent mentioning that goods, specified have been received and it would be delivered to the importer or his agent at the port of destination if good condition subject to terms and conditions mentioned therein.

IV. Long Answer Questions

Question 1.
What are the procedures relating to Export trade?
Answer:
An exporter has to fulfill the formalities given below to export the goods out of the country:
Receiving Trade Enquiry Exporter receives trade enquiry (written request) from the importer / his agent who intends to buy the product. In the first place, the importer requests the exporter to supply the information with regard to the products.

Receiving Indent and Sending Confirmation:
After the scrutiny of the quotation / proforma invoice, the buyer who intends to buy the goods sends an indent to the exporter. The latter may either receive the order directly from the importer or through an agent who acts as an intermediary between the exporter and the importer.

The agent receives a commission for this intermediating sendee. An indent actually points to an order received from abroad for export of goods, i.e. sale of goods. The indent contains the details in the box.

Arranging Letter of Credit:
Under this stage exporter intends to satisfy himself/herself about the trustworthiness of the importer. In this case the exporter is requested to arrange a letter of credit in his favour. Letter of Credit (LC) is an undertaking by its issuer (importer’s bank) that bills of exchange drawn by the foreign dealer on the importer will be honoured upon its presentation by exporter’s bank up to a specified amount.

In other words it simply represents a guarantee given by the importer bank to the foreign dealer (exporter) that the amount in the bill will be honoured upon its presentation by the exporter /his agent.

Obtaining Importer Exporter Code (IEC) and RBI code:
Number Exporter has to apply in Ayaab Niryatt Form 2A(ANF₂A) to the Regional Authority of the Director-General of Foreign Trade (DGFT) in the region where the registered office of the company is located. The exporter has to mention the number in all the shipping documents.

However, IEC number is not required where the goods are exported/imported for the personal use of importer and not for trade/ manufacture or agriculture purpose.

Obtaining Registration cum Membership Certificate (RCMC) from Export Promotion Council / Commodity Board:
An Exporter is required to obtain RCMC from Export Promotion Councils/ Commodity Board/Development Authority in order to avail himself/herself of export incentives, concessions, and other facilities offered by Government e g. cash compensatory support and benefit of the promotional scheme from Government.

Manufacturing / Procuring Goods and Packing items:
Exporters steps into manufacturing and procuring of goods required by the importer. Where the materials required for the manufacturing of goods are subject to excise duty. the exporter has to apply to Export Commissioner for exemption from excise duty if the goods are meant for export along with the invoice AR₄/AR₅ and other documents.

Export Inspection Certificate:
After the goods have been packed as per the specifications of importer, the exporter has to apply to the Export Inspection Agency (EIA) or other designated agency in this connection The agency sends an inspector to inspect the consignment meant for export. If the inspector is satisfied with the packing he/she issues certificate mentioning that. goods exported adhere to specification made by the exporter.

Insurance of Goods:
Exporter has to arrange for getting the goods insured to protect them against the various risks like deterioration, collision, immersion, fire, entry of seawater etc., as per the instructions of importer if any.

Certificate of Origin:
Import regulation of foreign countries may require that all these import consignments must accompany a certificate of origin. This certificate certifies that goods which are exported have been manufactured in a particular country. In India, the Chamber of Commerce, Trade Association, Export Promotion Council have been empowered to issue such certificates.

Consular Invoice:
Where the customs duties are charged on the basis of value of goods at import’s port(ad-valorem basis), the customs officers are empowered to open the consignment to calculate duties. This document is signed by the consul of importer’s country stationed in exporter’s country.

Engagement of Forwarding Agent
After Export Inspection certificate is obtained, the exporter has to obtain clearance from customs authorities. Generally exporters engage Clearing Forwarding Agent to fulfill various custom formalities. The latter do it for fees.

12. Dispatch of Goods to Port and Sending the Receipt to Agent The exporter will send the goods over to port town by rail or by truck and endorse the Railway Receipt (R/R) or Lorry Receipt(L/R) to forwarding agent’s favour with necessary instructions.13. Fulfilment of Customs Formalities by Forwarding Agent.

Customs Clearance
The exporter or his agent prepares three copies of shipping bill in printed form. The shipping bill contains the details like name and address of exporter, description of goods, value of goods, volume of goods, identification marks on the goods, port of destination and port of loading.

Preparation of Commercial Invoice and Submitting Documents to Bank
The exporter prepares a commercial invoice in respect of the goods shipped in triplicate according to the terms and conditions agreed between the exporter and the importer.

Then the exporter submits all related documents like commercial invoice, insurance policy, certificate of origin, consular invoice, etc., to his bank for onward transmission to the importer’s bank with the instruction that their documents should be delivered to the importer only when he accepts the bills enclosed
Securing Payment:
Bills of exchange of can are two types

1.  Document against payment (D/P)
2. Document against acceptance (D/A)

Question 2.
Distinguish between Bill of Lading and Charter Party.
Answer:

Basis	Bill of Lading	Charter Party
1. Meaning	This represents a document acknowledging receipt of goods on board for carrying them over to specified port of destination.	It refers to an agreement to hire a whole or major part of ship when the goods take exported is heavy.
2. Transferable	It Can be transferred to third party by endorsement and delivery.	It cannot be transferred to third party.
3. Loan	Loan can be raised against it.	Loan cannot be raised against it.
4. Crew	Master and crew remain the agent of ship owner.	Master and crew become the agent of exporter for a temporary period.
5. Lease	It is not a lease of ship.	It is a lease of ship.

Question 3.
What are the documents used in Export Trade?
Answer:
The following are the Documents used in Export Trade:
A. Documents related to Goods:

• Indent
• Certificate of Origin
• Certificate of Inspection

B. Documents related to shipment:

• Mate’s receipt
• Shipping bill
• Shipping Order
• Bill of Lading
• Marine Insurance Policy
• Consular Invoice
• Railway receipt/Lorry receipt

C. Documents related to Payment:

• Letter of Credit
• Commercial Invoice
• Bills of Exchange
• Bank Certificate Payment

Question 4.
Explain the various functions of Export Trading Houses.
Answer:
The functions of the export house are mentioned below:

1. Identifying a potential market for a product
2. Finding buyers and their agents and eliciting their response for export proposal.
3. Establishing product specifications in the light of market needs, standards and regulations in accordance with suppliers’ capabilities.
4. Determining appropriate mode of transportation and routing keeping in mind the cost, quality of service, and security.
5. Preparing the goods for delivery at destination.
6. Determining buyer’s creditworthiness.
7. Negotiating the transactions.
8. Arranging proper insurance coverage against maritime risks and currency fluctuations.
9. Financing the transactions and paying for goods and services received.
10. Preparing documents for international trade.
11. Settling claim.

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Tamilnadu Samacheer Kalvi 11th Economics Solutions Chapter 4 Cost and Revenue Analysis

Samacheer Kalvi 11th Economics Cost and Revenue Analysis Text Book Back Questions and Answers

Part – A

Multiple Choice Questions

Question 1.
Cost refers to _______
(a) price
(b) value
(c) fixed cost
(d) cost of production
Answer:
(d) cost of production

Question 2.
Cost functions are also known as …………………….. function.
(a) Production
(b) Investment
(c) Demand
(d) Consumption
Answer:
(a) Production

Question 3.
Money cost is also known as _______ cost.
(a) explicit
(b) implicit
(c) social
(d) real
Answer:
(a) explicit

Question 4.
Explicit cost plus implicit cost denote ………………… cost.
(a) Social
(b) Economic
(c) Money
(d) Fixed
Answer:
(b) Economic

Question 5.
Explicit costs are termed as
(a) out of pocket expenses
(b) social cost
(c) real cost
(d) sunk cost
Answer:
(a) out of pocket expenses

Question 6.
The costs of self – owned resources are termed as ……………………… cost.
(a) Real
(b) Explicit
(c) Money
(d) Implicit
Answer:
(d) Implicit

Question 7.
The cost that remains constant at all levels of output is _______ cost.
(a) fixed
(b) variable
(c) real
(d) social
Answer:
(a) fixed

Question 8.
Identify the formula for estimating average variable cost.
(a) TC/Q
(b) TVC/Q
(c) TFC/Q
(d) TAC/Q
Answer:
(b) TVC/Q

Question 9.
The cost incurred by producing one more unit of output is _______ cost.
(a) variable
(b) fixed
(c) marginal
(d) total
Answer:
(c) marginal

Question 10.
The cost that varies with the level of output is termed as …………………. cost.
(a) Money
(b) Variable cost
(c) Total cost
(d) Fixed cost
Answer:
(b) Variable cost

Question 11.
Wage is an example for _______ cost of the production.
(a) fixed
(b) variable
(c) marginal
(d) opportunity
Answer:
(b) variable

Question 12.
The cost per unit of output is denoted by …………………… cost.
(a) Average
(b) Marginal
(c) Variable
(d) Total
Answer:
(a) Average

Question 13.
Identify the formula of estimating average cost.
(a) AVC/Q
(b) TC/Q
(c) TVC/Q
(d) AFC/Q
Answer:
(b) TC/Q

Question 14.
Final total cost where TFC = 100 and TVC = 125.
(a) 125
(b) 175
(c) 225
(d) 325
Answer:
(c) 225

Question 15.
Long-run average cost curve is also called as _______ curve.
(a) demand
(b) planning
(c) production
(d) sales
Answer:
(b) planning

Question 16.
Revenue received from the sale of products is known as …………………….. revenue.
(a) Profit
(b) Total revenue
(c) Average
(d) Marginal
Answer:
(b) Total revenue

Question 17.
Revenue received from the sale of an additional unit is termed as _______ revenue.
(a) profit
(b) average
(c) marginal
(d) total
Answer:
(c) marginal

Question 18.
Marginal revenue is the addition made to the ……………………….
(a) Total sales
(b) Total revenue
(c) Total production
(d) Total cost
Answer:
(b) Total revenue

Question 19.
When price remains constant, AR will be _______ MR.
(a) equal to
(b) greater than
(c) less than
(d) not related to
Answer:
(a) equal to

Question 20.
A bookseller sold 40 books with a price of ₹10 each. The total revenue of the sellers is ₹ …………………….
(a) 100
(b) 200
(c) 300
(d) 400
Answer:
(d) 400

Part – B

Answer the following questions in one or two sentences

Question 21.
Define cost.
Answer:
Cost refers to the total expenses incurred in the production of a commodity. Cost analysis refers to the study of behaviour of cost in relation to one or more production criteria, namely size of output, the scale of production, prices of factors, and other economic variables.

Question 22.
Define cost function?
Answer:
The functional relationship between cost and output is expressed as ‘Cost Function’.
A Cost Function may be written as
C = f (Q)
Eg: TC = Q³ – 18Q² + 91Q + 12
Where, C = Cost, and Q = quantity of output. Cost functions are derived functions because they are derived from Production Functions.

Question 23.
What do you mean by fixed cost?
Answer:

1. Fixed Cost does not change with the change in the quality of output.
2. Fixed Cost is also called as “Supplementary Cost “or Overhead Cost”.
3. All payments for the fixed factors of production are known as Total Fixed Cost.

Question 24.
Define Revenue?
Answer:
The amount of money that a producer receives in exchange for the sale of goods is known as revenue. In short, revenue means sales revenue. It is the amount received by a firm from the sale of a given quantity of a commodity at the prevailing price in the market.

Question 25.
Explicit Cost – Define.
Answer:
Payment made to others for the purchase of factors of production is known as Explicit Costs. It refers to the actual expenditures of the firm to purchase or hire the inputs the firm needs.

Question 26.
Give the definition for ‘Real Cost’?
Answer:
Real Cost refers to the payment made to compensate for the efforts and sacrifices of all factor owners for their services in production. Real Cost includes the efforts and sacrifices of landlords in the use of land, capitalists to save and invest, and workers in foregoing leisure. Real costs are considered pains and sacrifices of labour as the real cost of production.

Question 27.
What is meant by Sunk cost?
Answer:
A cost incurred in the past and cannot be recovered in the future is called a Sunk Cost. This is historical but irrelevant for future business decisions. It is called sunk because, they are unalterable, unrecoverable and if once invested it should be treated as drowned or disappeared.

Part – C

Answer the following questions in One Paragraph

Question 28.
Distinguish between fixed cost and variable cost.
Answer:
Fixed Cost:

1. Does not change with the change in the quantity of output.
2. It is also called ‘Supplementary cost’ or ‘Overhead cost’.
3. (Eg.) Rent of the factory, Permanent worker’s salary.

Variable Cost:

1. These costs vary with the level of output
2. It is also called ‘Prime cost’, ‘Special cost’ or ‘Direct cost’.
3. (Eg.) Cost of raw materials, Temporary worker’s salary.

Question 29.
State the differences between money cost and real cost.
Answer:
Money Cost:

1. It is the total money expenses incurred by a firm in producing a commodity.
2. It includes the cost of raw materials, payments of wages and salaries, rent, interest, etc.,
3. It is also called prime cost or direct cost or nominal cost.

Real Cost:

1. It refers to the payment made to compensate for the efforts and sacrifices of all factor owners for their services in production.
2. It includes the efforts and sacrifices of factors of production.
3. Landlords’ effort is the use of land, capitalists to save and invest, and workers in foregoing leisure.

Question 30.
Distinguish between explicit cost and implicit cost.
Answer:
Explicit Cost:

1. Payment made to others for the purchase of factors of production.
2. It includes wages, payment for raw material, rent, interest, expenditure on transport, and advertisement.
3. It is also called accounting cost or out of pocket cost or money cost.

Implicit Cost:

1. Payment made to the use of resources that the firm already owns.
2. Cash payment is not made for the use of the producer’s own land, building, machinery, and other factors of production.
3. Implicit cost is also called imputed cost or book cost.

Question 31.
Define opportunity cost and provide an example?
Answer:
Opportunity cost is the cost of the next best alternative use. It is the value of the next best alternative foregone.
(Eg.) A farmer can cultivate both paddy and sugarcane in farmland. If he cultivates paddy, the opportunity cost of paddy output is the amount of sugarcane output given up. Opportunity cost is also called ‘Alternative cost’ or ‘Transfer cost’.

Question 32.
Stale the relationship between AC and MC.
Answer:
There is a unique relationship between the AC and MC curves.

1. When AC is falling, MC lies below AC.
2. When AC becomes constant, MC also becomes equal to it.
3. When AC starts increasing, MC lies above the AC.
4. MC curve always cuts AC at its minimum point from below.

Question 33.
Write a short note on Marginal Revenue?
Answer:
Marginal revenue (MR) is the addition to the total revenue by the sale of an additional unit of a commodity
MR = \(\frac { ∆TR }{ ∆Q } \)
MR-Marginal Revenue;  ∆TR – Change in total revenue, ∆Q – Change is the total quantity (OR) MR = TR_n – TR_n-1
TR_n – Total Revenue of n^th item.
TR_n-1 – Total Revenue of n-1^th item.
If TR = PQ, MR = dTR / dQ = P
Which is equal to AR.

Question 34.
Discuss the Long run cost curves with a suitable diagram.
Answer:
In the long run, all factors of production become variable. The existing size of the firm can be increased. There are neither fixed inputs nor fixed costs in the long run.

LAC = LTC/Q
LAC – Long-run average cost LTC – Long-run total cost
Q – denotes the quantity of output.
The LAC curve is derived from short-run average cost curves. It is the locus of points denoting the least cost curve of producing the corresponding output.
The LAC curve is called as ‘Planning curve’ or ‘Envelope curve’

Part – D
Answer the following questions in about a page

Question 35.
If total cost =10+Q³, find out AC, AVC, TFC, AFC when Q = 5.
Answer:
Formulas:
TC = TFC + TVC
AVC = \(\frac{TVC}{Q}\)
AFC = \(\frac{TFC}{Q}\)
AC = \(\frac{TC}{Q}\)

1. TC = 10 + Q³. The total cost has two components TFC and TVC.
2. TFC = is the total fixed cost that does not change with the level of output.
3. It is determined by putting the value of Q.
4. Given the total cost function TC = 10 + Q³

Q = units of output. Where Q = 5
Here TFC = 10 (TFC will not change when output changes)
TC = 10 + (5)³
TC = 10+125
TC = 135
∴ 135 = 10 + TVC
135 – 10 = TVC

TVC = 125
TVC = 125,
TC = 135
∴TFC = ?
TC = (TFC + TVC)
135 = x + 125
135 – 125 = 10

∴ TFC = 10
AFC = \(\frac{TFC}{Q}\)
TFC = 10, Q =5
AFC = \(\frac{10}{5}\) = 2

∴ AFC = 2
AVC = \(\frac{TVC}{Q}\)
TVC = 125,Q = 5
AVC = 125
∴ AVC = 25
AC = \(\frac{AC}{Q}\)
TC = 135,Q = 5
AC = \(\frac{135}{5}\) = 27
(or)
AC = AFC + AVC
AC = 2 + 25
AC = 27

Question 36.
Discuss the short-run cost curves with a suitable diagram.
Answer:
1. Total fixed cost: TFC
All payments for the fixed factors of production are known as total fixed costs. It does not change with output.

2. Total variable cost: TVC
All payments to the variable factors of production are called a total variable cost. As output increases, TVC also increases.

3. Total cost curves: TC
Total cost means the sum total of all payments made in the production. It is the total cost of production.
TC = TFC + TVC.

4. Average fixed cost: AFC
It refers to the fixed cost per unit of output.
AFC = \(\frac { TFC }{ Q } \)

5. Average variable cost: AVC
It refers to the total variable cost per unit of output.
AVC = \(\frac { TFC }{ Q } \)

6. Average cost:
It refers to the total cost per unit of output.
AC = \(\frac { TC }{ Q } \) (or) AC = AFC + AVC

1. ATC curve is also a ‘U’ shaped curve.
2. Initially, ATC declines, reaches a minimum, and rises beyond the optimum output.
3. The ‘U’ shape of the AC reflects the law of the variable proportions.

Marginal Cost:
Marginal cost is the addition made to the total cost by producer one extra unit of output

Question 37.
Bring out the relationship between AR and MR curves under various price conditions.
Answer:
If a firm is able to sell additional units at the same price then AR and MR will be constant. If the firm sells its additional units only by reducing the price then both AR and MR will fall and be different.

Constant AR and MR: (at a fixed price)
If the price remains constant, MR also remains constant and coincides with AR. Under perfect competition as the price is constant, AR is equal to MR and their shape will be straight line horizontal to X-axis.
TR – AR – MR – Constant price

Declining AR and MR: (at declining price)

When a firm sells large quantities at lower prices both AR and MR will fall. But the fall in MR will be steeper than the fall in the AR and MR lies below AR.

The MR curve divides the distance between the AR curve and Y-axis into two equal parts. The decline in AR need not be a straight line or linear. If the prices are declining with the increase in quantity sold, the AR can be non-linear may be concave or convex to the origin

AR, TR, MR declining price

Samacheer Kalvi 11th Economics Cost and Revenue Analysis Additional Questions and Answers

Part – A

Choose the best options

Question 1.
Real Costis ……………………
(a) Pain and sacrifice
(b) Subjective concept
(c) Efforts and foregoing leisure
(d) All the above
Answer:
(d) All the above

Question 2.
Average fixed cost is obtained by _______
(a) TC / Q
(b) TFC / Q
(c) TVC / Q
(d) None of the above
Answer:
(b) TFC / Q

Question 3.
The Marginal Cost curve is ……………………..
(a) V-shaped
(b) Upward
(c) Downward
(d) U – shaped
Answer:
(d) U – shaped

Question 4.
Total fixed cost + Total variable cost is?
(a) AC-MC
(b) TC-AC
(c) TC
(d) None
Answer:
(c) TC

Question 5.
What is the break-even point?
(a) No profit no loss point
(b) No profit
(c) No loss
(d) Profit – point
Answer:
(a) No profit no loss point

Question 6.
Break-Even point is _______
(a) Total cost and total revenue
(b) Average revenue and financial revenue
(c) No profit – no loss point
(d) All the above
Answer:
(c) No profit – no loss point

Question 7.
What is the other name for “Opportunity Cost”?
(a) Real Cost
(b) Money Cost
(c) Economic Cost
(d) Social Cost
Answer:
(a) Real Cost

Question 8.
Average variable cost is _______
(a) TFC / Q
(b) TVC / Q
(c) TC / Q
(d) None
Answer:
(b) TVC / Q

Question 9.
…………………….. revenue means the price of the product.
(a) Total
(b) Marginal
(c) Profit
(d) Average
Answer:
(d) Average

Question 10.
The cost function is the
(a) Relationship between total cost and output
(b) Relationship between revenue and cost
(c) Relationship between wages and interest d. None of the above
(d) None of the above
Answer:
(a) Relationship between total cost and output

Question 11.
Match the following

(a) 1 – (iv), 2 – (i), 3 – (iii), 4 – (ii)
(b) 1 – (iv), 2 – (i), 3 – (ii), 4 – (iii)
(c) 1 – (ii), 2 – (iii), 3 – (iv), 4 – (i)
(d) 1 – (iii), 2 – (iv), 3 – (i), 4 – (ii)
Answer:
(b) 1 – (iv), 2 – (i), 3 – (ii), 4 – (iii)

Match the following and choose the answer using the codes given below

Question 1.

(a) 1 2 3 4
(b) 3 4 1 2
(c) 2 3 4 1
(d) 4 3 1 2
Answer:
(b) 3 4 1 2

Question 2.

(a) 3 4 2 1
(b) 1 2 3 4
(c) 2 3 4 1
(d) 4 3 1 2
Answer:
(a) 3 4 2 1

Question 3.

(a) 2 3 4 1
(b) 3 4 2 1
(c) 1 2 3 4
(d) 4 3 2 1
Answer:
(d) 4 3 2 1

Question 4.

(a) 2 3 4 1
(b) 2 1 4 3
(c) 4 3 2 1
(d) 2 4 1 3
Answer:
(b) 2 1 4 3

Choose the correct statement

Question 5.
(a) In the long run, all the factors are fixed
(b) The LAC curve is called an envelope curve.
(c) LAC is equal to the long-run total cost
(d) LAC curve cannot be derived from short-run cost curves
Answer:
(b) The LAC curve is called an envelope curve.

Question 6.
(a) Revenue means the price of the product.
(b) Marginal revenue is equal to the price of the product.
(c) Revenue means sales revenue d. Average revenue is the total income of the firm.
(d) Average revenue is the total income of the firm
Answer:
(c) Revenue means sales revenue d. Average revenue is the total income of the firm.

Choose the incorrect pair

Question 7.

Answer:
(d) MR is infinity (iv) TR is decreasing

Question 8.

Answer:
(a) ATC  – (1) TC_n – TC_n-1

Analyze the reason for the following

Question 9.
Assertion (A) : If AR remains constant MR is also constant.
Reason (R) : MR is the addition made to the TR by the sale of an additional unit of a commodity.
(a) Both (A) and (R) are true, (R) is the correct explanation of (A)
(b) Both (A) and (R) are true, (R) is not the correct explanation of (A)
(c) Both (A) and (R) are false.
(d) (A) is true (R) is false.
Answer:
(b) Both (A) and (R) are true, (R) is not the correct explanation of (A)

Question 10.
Assertion (A) : Real cost refers to the payment made to compensate for the efforts and sacrifice of all factor owners.
Reason (R) : Adam Smith regarded pain and sacrifice of labour as the real cost of production.
(a) Both (A) and (R) are true, (R) is the correct explanation of (A)
(b) Both (A) and (R) are true, (R) is not the correct explanation of (A)
(c) Both (A) and (R) are false.
(d) (A) is false (R) is true.
Answer:
(a) Both (A) and (R) are true, (R) is the correct explanation of (A)

Choose the incorrect statement

Question 11.
(a) When AC is falling, MC lies below AC.
(b) When AC becomes constant, MC also equal to it.
(c) When AC starts increasing, MC lies above the AC.
(d) MC never cuts AC curve.
Answer:
(d) MC never cuts AC curve.

Question 12.
(a) MR is equal to zero and TR is decreasing
(b) AR and MR curve depends upon the elasticity of AR curve
(c) When price elasticity is greater than one, MR is positive
(d) When price elasticity is less than one, MR is negative
Answer:
(a) MR is equal to zero and TR is decreasing

Choose the odd one out

Question 13.
(a) Money cost
(b) Total variable
(c) Real cost
(d) prime cost
Answer:
(b) Total variable

Question 14.
(a) When P = 3, Q = 8 then TR = 24
(b) When P = Q = 1 then TR = 10
(c) When P = 4, Q = 6 then TR = 27
(d) When P = 5, Q = 7 then TR = 35
Answer:
(c) When P = 4, Q = 6 then TR = 27

Fill in the blanks with the suitable option given below

Question 15.
Economics profit is ______
(a) TR – TC
(b) TC – TR
(c) AC – MC
(d) None
Answer:
(a) TR – TC

Question 16.
Cost function is the ________
(a) Relationship between total cost and output
(b) Relationship between revenue and cost
(c) Relationship between wages and interest
(d) None of the above
Answer:
(a) Relationship between total cost and output

Question 17.
Break-even point is _________
(a) Total cost and total revenue
(b) Average revenue and financial revenue
(c) No profit – No loss point
(d) All the above
Answer:
(c) No profit – No loss point

Choose the best option

Question 18.
Average fixed cost is obtained by
(a) TC / Q
(b) TVC / Q
(c) AC / Q
(d) TFC / Q
Answer:
(d) TFC / Q

Question 19.
Long-run average cost curve can also be called as _____
(a) Planning curve
(b) Envelope curve
(c) Boat-shaped curve
(d) All the above
Answer:
(d) All the above

Question 20.
Total fixed cost + Total variable cost is _____
(a) AC – MC
(b) TC
(c) TC – AC
(d) None
Answer:
(b) TC

Part – B

Answer the following questions in one or two sentences

Question 1.
Give the definition for Economic Cost?
Answer:

1. Economic cost refers to all payments made to the resources owned and purchased or hired by the firm in order to ensure their regular supply to the process of production. It is the summation of explicit and implicit costs.
2. Economic Cost is relevant to calculate the normal profit and thereby the economic profit of a firm.

Question 2.
What is the economic cost?
The economic cost is the summation of explicit and implicit costs.

Question 3.
What is the Average Variable Cost?
Answer:
The average variable cost refers to the total variable cost per unit of output. It is obtained by dividing total variable cost (TVC) by the quantity of output [Q], AVC = TVC/Q, where AVC denotes Average variable cost, TVC denotes total variable cost and Q denotes the quantity of output.

Question 4.
What is a floating cost?
Answer:
Floating cost refers to all expenses that are directly associated with business activities but not with asset creation.

Question 5.
What are variable costs?
Answer:
The variable cost varies with the level of output. It is also called as prime cost, special cost or direct cost.

Question 6.
What is total revenue?
Answer:
Total revenue is the amount of income received by the firm from the sale of its products.

Question 7.
What is marginal revenue?
Answer:
Marginal revenue is the addition to the total revenue by the sale of an additional unit of a commodity.
MR = TR_n – TR_n-1

Part – C

Answer the following questions in One Paragraph

Question 1.
How can you calculate the average fixed cost?
Answer:
The average fixed cost is the fixed cost per unit of output. It is obtained by dividing the total fixed cost by the quantity of output.
AFC = \(\frac { TFC }{ Q } \)
(Eg.) If TFC is 100;
Q = 10 Find AFC
AFC = \(\frac { TFC }{ Q } \)
= \(\frac { 1000 }{ 10 } \)
AFC = 100.

Question 2.
Define the Prime Cost?
Answer:

1. All costs that vary with output, together with the cost of administration are known as Prime Cost.
2. Prime Cost = Variable Costs + Costs of Administration.

Question 3.
Write a note on average revenue.
Answer:
Average revenue is the revenue per unit of the commodity sold. It is calculated by dividing the total revenue (TR) by the number of units sold (Q).
AR = \(\frac { TR }{ Q } \)
If TR = PQ
AR = \(\frac { PQ }{ Q } \) = P
AR = P
AR – Average revenue, TR – Total revenue, Q – the quantity of unit sold.