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BBA 3rd Year 604 International Trade Examination Sample Model Mock Test Paper 2016

11. Explain the objectives and purposes of international economic institutions.

Ans. Objectives and Purposes of International Economic Institutions

The growth of international trade can be increased, if the countries follow a common set of rules, regulations and standards related to import and export. These common rules and regulations are set by various international economic institutions. These institutions aim to provide a level playing field for all the countries and develop economic cooperation. These institutions also help in solving the currency issues among countries related to stabilising the exchange rates. There are three major international economic institutions, namely, WTO, IMF and UNCTAD.

[I] World Trade Organisation

WTO was formed in 1995 to replace the General Agreement on Tariffs and Trade (GATT), which was started in 1948. GATT was replaced by WTO because GATT was biased in favour of developed countries. WTO was formed as a global international organisation dealing with the rules of international trade among countries.

The main objective of WTO is to help the global organisations to conduct their businesses. WTO, headquartered at Geneva, Switzerland, consists of 153 members and represents more than 97% of world’s trade.

The main objectives of WTO are as follows:

(a) Raising the standard of living of people, promoting full employment, expanding production and trade, and utilising the world’s resources optimally.

(b) Ensuring that developing and less developed countries have better share of growth in the world trade.

(c) Introducing sustainable development in which balanced growth of trade and environment goes together

The main functions of WTO are as follows:

(a) Setting the framework for trade policies.

(b) Reviewing the trade policies of different countries.

(c) Providing technical cooperation to less developed and developing con

(d) Setting a forum for addressing trade-related disputes among different coun

(e) Reducing the barriers to international trade.

(f) Facilitating the implementation, administration and operation of age

(g) Setting a negotiation forum for multilateral trade agreements.

(h) Cooperating with the international institutions, such as IMF and World Bank for making global economic policies.

(i) Ensuring the transparency of trade policies.

(j) Conducting economic research and analysis.

[ll] International Monetary Fund

IMF, established in 1945, consists of 187 member countries. It works to secure financial stability, develop global monetary cooperation, facilitate international trade, and reduce poverty and maintain sustainable economic growth around the world. Its headquarters are in Washington D.C., United States.

The objectives of IMF are as follows:

(a) Helping in increasing employment and real income of people.

(b) Solving the international monetary problems that distort the economic development of different nations.

(c) Maintaining stability in the international exchange rates.

(d) Strengthening the economic integrity of the nations. (e) Providing funds to the member nations as and when required.

(f) Monitoring the financial and economic policies of member nations.

(g) Assisting low developed countries in effectively managing their economies.

[iii] United Nations Conference on Trade and Development

UNCTAD, established in 1964, is the principal organ of United Nations General Assembly. It provides a forum where the developing countries can discuss the problems related to economic development. UNCTAD is headquartered in Geneva, Switzerland and has 193 member countries.

The main objectives of UNCTAD are as follows:

(a) Eliminating trade barriers that act as constraints for developing countries.

(b) Promoting international trade for speeding up the economic development.

(c) Formulating principles and policies related to international trade.

(d) Negotiating the multinational trade agreements.

re) Providing technical assistance to developing countries especially low developed countries.

12. What are the functions of Export-Import Bank of India? Comment on its performance.

Ans. Export-Import Bank of India : Functions

The Export-Import Bank of India was set up by the Government of India on January 1, 1982

Functions of Exim Bank

The following are the functions of Export-Import Bank: Tal Finance for Exports and Imports: Exim Bank helps by providing finance for export

of goods as well as services from India. One of the major export policies adopted by government

Of India is the export of value added items, for example, all along we have been exporting Hades and skins from India now, it is ‘Processed leather’ in the form of leather goods. So, the exporter who was earning 1 or 2 dollars while exporting Hades and skins will now earn 25 to 30 dollars when he exports in the form of leather goods. Similarly, import of raw materials such as gold will be financed by Exim Bank, since it will be exported as jewels which is again a value added export..

(b) Finance on Deferred Basis: Exim Bank provides finance on deferred basis for importing el equipment and other machinery. The cost of capital equipment in foreign countries will be

and the Indian importer cannot afford to pay lump sum payment in foreign exchange. The Exim hank provides guarantee on behalf of the importer and enables the importer to make payment on instalment basis to the foreign exporter. Or, the bank itself may pay in bulk to the foreign exporter and receive instalment payments from the Indian importer.

(C) Lease Finance: It provides lease finance for importing capital equipment. Under cross border leasing, the lessor may be in a foreign country, while the lessee will be in India. The Exim Bank helps the Indian lessee in obtaining the capital equipment on lease by making the lease payment in terms of foreign exchange. It also helps for import leasing, wherein both the lessor and lessee will be Indians but the equipment imported on lease may be from U.S.A. or U.K.

(d) Finance to Export Projects: Export projects in Third World countries are financed. India has taken up various export projects in Third World countries, such as railway project in Tanzania. Similarly, projects on some of the oil wells in Kuwait and Iraq taken up by Oil and Natural Gas Commission (ONGC) are also financed by Exim Bank. All the necessary equipments and the manpower required for such projects will be financed by the Exim Bank

(e) Line of Credit: The Exim Bank provides line of credit to foreign importers so that exports from India can increase. Under line of credit, Exim Bank will provide finance to the central bank of the borrowing country which in turn will provide to the commercial bank and ultimately the credit will reach the importer. This kind of credit is safe as there is guarantee of funds at every stage.

(f) Refinance in Foreign Exchange: The Exim Bank obtains bulk loan in foreign currencies in the foreign exchange market and provides refinance to the financial institutions, providing export finance. Different types of exporters may require different foreign currencies and these are obtained by the Exim Bank at a competitive interest rate and are given to commercial banks for lending to exporters. It is due to this, the commercial banks are able to provide pre-shipment and post-shipment finance to different exporters.

(g) Contribution to Equity Fund: The Exim Bank also contributes to the shares and debentures of Indian companies involved in exports. Export companies while raising capital, may issue shares which may be partly financed by Exim Bank. The bank may extend this facility as a temporary finance as it will not retain the shares permanently. As a part of investment policy or by way of portfolio investment it may invest in the shares and debentures of companies involved in exports.

(h) Chi Consultancy Services: The Exim Bank also provides technical, administrative and other assistance to exporters. Export projects are analysed by the Exim Bank from the point of view of technical, managerial, marketing and financial feasibility. When it finds a project viable, on the above

grounds, it will not hesitate to fund it.


Exim Bank of India is a wholly government owned unit. Thus, huge amount of grants are given by the government to the bank, in return bank gives huge amount of taxes along with the balance of profit. If this grant is considered to be the investment, then the PBT is the amount of return.

The Exim Bank of India had expanded very high in the year 2013-14 for the provision for loan, losses/contingencies, depreciation on investments which is about 774,58,91,595 more compared to the last year 2012-13. Due to this, the general trend of increasing PAT & PBT has been hindered. This may lay a negative impact in the eye of the general public. Proper cost control method should be adopted.

A very unique way of transfer of profit to central government is seen. The registered Profit Before Tax (PBT) of general fund is taken into account, then tax is paid and we arrive at Profit After Tax (PAT). Out of this profit, an amount is transferred to reserve fund. In addition, the bank has to transfer a fixed percentage on PAT to sinking fund and an amount to the Special Reserve as u/s 36(1)(viii) of the ‘Income Tax Act, 1961’. The balance amount will then be transferred to the central government as provided in the Export-Import Bank of India Act, 1981.

One thing is to be taken into account that the borrowings are the main source of resources for Exim Bank of India which is increasing every year, even after paying the high amount of interest and part of the principal amount the institution is earning very high amount of profits. This clearly shows the bright future of the Exim Bank of India and its relevance in export financing.

13. Discuss the major highlights of New Foreign Trade Policy.

Ans. Refer to Unit-V, Sec-C, Q.3.

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