Solution of Trade Chapter Unit 3 / Accountancy
Q.No.1 Short answer question
a. What is the full form of SAPTA.
Ans. The full form of SAFTA is the South Asian Free Trade Area .
b. Write full form of SAPTA.
Ans. The full form of SAPTA is South Asian Preferential Trade Arrangement .
c. Write the full form of FOB.
Ans. The full form of FOB is Free on Board.
d. What is trade.
Ans. Trade is an activity of buying and selling goods and service goods and service between two person or parties to generate profit.
e. What is home trade.
Ans. Home trade ia an act of buying and selling goods within the boundaries of country and payment for the same is made in national currency.
f. What is foreign trade.
Ans. The trade which takes place between two or more than two countries is called foreign
g. Mention the types of foreign trade.
Ans. The types of foreign trade are import export and entrepot trade.
h. What is retail trade.
Ans. Retail trade refers to the selling and goods by the retail to the consumer thus acting as the link between the wholesaler and the final consumer .
i. What is wholesale trade.
Ans. wholesale trade refers to the purchase and sale of goods of a specific variety in bulk.
j. Who sends quotation letter to whom in foreign trade.
Ans. The exporter sends the quotation letter to the import inn foreign trade.
k. Write any two means payment.
Ans. The two means of payment are telegraphic transfer TT and bank draft.
l. Name various types of invoice used in trade.
Ans. The various types of invoice used in trade are LOCO invoice FOB invoice C and F invoice CIF invoice and Faanco invoice.
m. What is invoice.
Ans. The invoice is the bill prepared by the seller in the name of the buyer which contain the name of the goods rate quality and of quality of goods
n. What is the full form of WTO.
ANS. The full form of WTO is world trade organization.
o. Write the full form of GATT.
Ans. The full form of GATT is general agreement on tariffs and trade.
p. Write the full form of CIF invoice.
Ans. The full form of CIF invoice is cost insurance and freight invoice.
q. Writ the full form of SWIFT.
ANS. The full form of SWIFT is society for worldwide international financial transaction.
[Group =B ] Short answer question
a. Why is trade. Mention any four difference between home trade and foreign trade.
Ans. The act of buying and service is called trade. Trade is a very import function of every country. It is nessery;
• To full fill the demand of public.
• To full fill the demand of Nation.
• To improve the economic status of the Nation.
• To use the resource of the country etc.
The difference between home trade and foreign trade are;
Home trade Foreign trade
This trade takes place within the national boundary. The trade takes between two or more countries.
Buying and selling goods between the traders of the same country. Buying and selling goods between two or more countries.
It does not require to open the letter of credit. It requires to open the letter of credit by the importer.
Payment is made in local currency Payment is made in foreign currency.
b. Define home trade. Describe itd four ordely.
Ans. Business dealing like selling and distributing of goods within a country is called hone trade. Here the term home refers to the same country. The purchase and sale of vegetable cloth, sugar, apple, tea etc. in different places of Nepal are the examples of the home trade. It can be performed as wholesale trade and retail trade . the payment in home trade is normally legal and administrative formalities involved in conducting home trade.
The procedures of home trade are given below;
i. Inquiry = under home trade , a buyer sends separate inquiry letter to every possible seller or supplier in order to find out from out find which the desired goods could be brought.
ii. Quotation/price = After the seller receives the inquiry letter from the possible buyer ,the details of goods along with price list and other necessary details are sent.
iii. Purchase order= the buyer after receiving the reply to he/she studies and analyses them and decides to buy the goods /products, quality ,number and other necessary terms and conditions mentioned in the purchase order.
iv. Collection of goods= when the seller or supplier receives the purchase order from the buyer. He/she starts looking for goods in godowns and collects them fin one place .this acts of collecting the goods as per the order is called the collection of goods.
c. Why is trade is necessary. Explain any four procedures of home trade in brief.
Ans. People are involved In the different en economic activities to earn a livelihood .some people are involved in buying and selling goods and service. The act of buying and selling of goods and service is called trade. The necessities of trade are gjven below;
• To use the natural resource of the country.
• To purchase raw materials for procedures.
• To fulfill the demands of the country.
• To fulfill the demands of consumers.
• To create employment.
• To keep the relationship between producer and consumer.
The procedures of home trade are given below ;
I. Inquiry= under home trade a buyer sends separate inquiry letter to every possible seller or supplier in order to find out from which the details goods could be brought .
II. Quotation/price list= After the seller recives the inquiry letter from the possible buyer the details of goods along with the price list and necessary details are sent.
III. Purchase order= The buyer after receiving the reply to his/her inquiry letter. Along with the price lists ,from several sellers. he/she studies and analysis them and decide to buy the goods/products, quality , number and other necessary learns and conditions mentioned in the purchase order.
IV. Collection of goods=when the seller or supplier receives the purchase order from the buyer. He /she starts looking for the goods in godowns and collects them in one place. This act of collecting of goods.
d. Why is home trade necessary. Why two similarities and two dissimilarities between home trade and foreign trade .
Ans. Home trade refers to the purchase and sale of goods between the person or organization inside the country. It plays an important role in the development of a country. The necessity of home trade and can be mentioned in the following ways;
• Exchange goods and services =home trade helps to exchange good and services between the person/organization inside a country. Hence,it fulfills theeeeeeee need of the country .
• Supply goods and services =it helps the goods and services throughout the country in a balanced way.
• Maintain a balance of payment = it discourage the import and assists to maintain the balance of payment.
• Promote economic development = it promotes the economic development of a country the through the development of industry and commerce.
The similarities between home and foreign trade are as follows
i. Both trades support the nation for economic development.
ii. Home and foreign trades are conducted to earn profit.
The dissimilarities between home trade and foreign trade are as follows
Bases of differences Home trade Foreign trade
boundary Home trade takes place within the national boundary. Foreign trade takes places between two or more countries.
currency Payment is made in local currency in the home trade. Payment is made in foreign currency in foreign trade.
Mode of payment Payment can be made through cash or bank Payment can be made through the bank only.
e. Why is trade necessary. Mention any four difference between home and foreign trade.
Ans. People are involved in different economic activities to earns livelihood. Some people are involved in buying and selling goods and services. The act of buying and selling goods and services is called trade. Trade is necessary to develop the country. The necessities of trade are given below
• To use the natural resources of the country.
• To provide raw materials for procedures.
• To fulfill the demands of the country.
• To fulfill the demand of the consumers.
• To create employment.
• To keep the relationship between the procedures and the consumers.
The differences between home trade and foreign trade are as follows
Basic of difference Home trade Foreign trade
Boundary Home trade take place within the natural boundaries . Foreign trade takes place between two or more countries.
Involvement The people or parties of the same country are involved. The people or parties of two or more countries are involved.
Restriction There are few restriction on home trade. There are many restriction on foreign trade.
Currency Payment is made in local currency in the home trade. Payment is made in foreign currency in foreign trade.
Mode of payment Payment can be made through cash or bank. Payment can be made through the bank only.
f. Describe the brief any five means of payment used in business.
Ans. The modes of payment used I trade are as given below
Letter of credit=In international trade, the payment of goods are made through a bank by issuing a letter of credit. In the international trade payment of goods is made through a bank on the basis of a documents or letter. The letter issued by the importers banks to the basics to the exporters bank is the called a letter of credit. So, a letter of credit is a bank guarantee provides by the local bank on the behalf of the importer for making payment for the value of goods to the exporter through his/her local bank.
Cheque= payment through is an important mode of payment. A cheque is an order given to the bank by the account holder, on the printed form issued by the bank for paying the amount to the person named therein or the bearer.
ATM card= ATM card is used as modern means of drawing cash under the modern banking system. ATM stands for automated teller machine. This card can be obtained from the bank providing ATM facility. Certain procedures have to executed receive an ATM card. The ATM cardholder can withdraw money at the any time of the day. In order to withdraw money from automatic teller machine , the ATM card has inserted in the specified slot.Then the machine ask pin number. ON THE PRESSING The pin number,the machine confirms the originally of a card, finds out the balance very quickly and displays various options on the screen . this work is done 20 to 30 seconds.
Electronic transfer = The process of transferring money from one bank to another bank through electronic media is called electronic transfer. It is much secured international telecommunication network operated through is established for electronic transfer. The electronic payment system is cashless payment. It is done through the use of cards , mobile phones and the internet. In the Nepal , the majority of banks and financial organization provide the facilities to their customers.
Bank draft= Bank draft is an written order issued by the bank to another bank to make payment of a certain sum of amount to a specific person or party is known a bank draft6. For this, sender is reminded to fill out a form issued by the bank and submit it to the bank along with the amount to be transferred and transfer charge. Then the bank issue s a draft t to the sender which is eventually sent to the receive . the receiver deposite the draft in his account and payment is obtained by him/ her issuing a fresh cheque held by his/ her. A draft can by general, crossed,and account payee.
g. Brief explain the types of invoice.
Ans. On the basic of the content of the foreign invoice there are the following types of invoice.
I. Loco invoice= In loco invoice , the rate charged on the local price. Other expenses are not shown in the invoice but are charged separately as per the agreement between the importer and the exporter.
II. Free on the board[F.O.B] invoice= This is the one in which the transportation charge of boarding the goods on the ship is also shown. The other expenses are charged separately as the agreement between the inporter and exporter.
III. Cost and freight [c and f]=it is an invoice that mentions all the expenses incurred from the expoters place to the importers place.
IV. Cost, insurance and freight [C.I.F] invoice= In this invoice , the insurance expenses are also mentioned. The rate is fixed on the basic of total expenses.
V. Franco invoice = It is an invoice in which all the expenses are mentioned. The importer does not have to bear any difficulties.
Name of the invoice The local price of goods [in Rs] Freight
[ in Rs] Insurance
[in Rs ] Others
[in Rs ] The price that is mentioned in the invoice
Loco 25 – – – 25
F.O.B 25 10 – – 35
C and F 25 10 15 – 50
C.I.F 25 10 15 55
Franco 25 10 15 10 65
h. Describe any five method/procedures of home trade orderly.
I. Inquiry=under home trade, a buyer sends separate inquiry letters to every possible seller or supplier in order to find out from which the desired goods could be brought.
II. Quotation/price list= After the seller receives the inquiry letters from possible buyer, the details of goods along with the price list and the necessary details are sent.
III. Purchase order= the buyer after receiving the reply his/her inquiry letter, along with the price list from several seller. He/she studies and analyses them and decide to buy the goods /product, quality, number and other necessary terms and conditions in purchase order.
IV. Collection of goods= when the seller or supplier receives the purchase order from the buyer. He/she starts looking for the goods in godowns and collects them in one place. This acts of collecting the goods as per the order is called the collection of goods.
V. Packing of goods= After having collected the goods , the seller has to go for the appropriate packing as per the nature of goods ordered. The purpose of packing the goods is to ensure that the goods can be easily loaded and unloaded and that thry do not get damaged in the course of transformation.
i. Why is foreign trade necessary . explain any three documents used in both home trade and foreign trade.
Ans. The exchange or transfer of goods and services can be termed trade. It is an important branch of commerce engaged in buying and selling goods in exchange for money. It is the final stage of business activities and involves the transfer of ownership. Buying and selling operations carried out by trades who remove the hindrance of persons in exchange of goods. A trader acts as an intermediary between the producer and the consumers. Trade plays a very important role in transferring the good manufactured from the producer to the final consumer.
i. Letter of enquiry= Letter of enquiry is usual in both home trade and foreign at the first step of trade. The buyer or the importer makes a written enquiry from various supplier or the importer makes a written enquiry from various supplier or exporters regarding the rate , quality , quantity, of goods and other terms and conditions of trade. The buyer or the importer requests the supplier or exporters to inform about quality, quantity, price of goods, discount offered, terms of payment, delivery time and other terms of trade through this letter. The objectives of this letter is to select the best supplier or exporter who can offer the goods at least price with favorable terms and conditions.
ii. Reply to the letter of enquiry= The second important document used in both home and foreign trade is the reply to the letter of enquiry. It is a called as a quotation. The supplier or the exporter sends the reply to the letter of enquiry received from the buyer or the importer. In quotation, the supplier or the exporter quotes the rate of goods, and other terms and condition of trade as inquired by the buyer or importer. The supplier or exporter tries to quote the most competitive price of goods along with others terms and conditions favorable to the buyer or the importer.
iii. Purchase order= After the quotation is received, the buyer or the importer makes the comparison of the rates of goods and other terms and conditions of trade among various suppliers or exporter. He selects the best suppliers or exporter and sends the letter called purchase order. It is the formal contract letter between the supplier or exporter and the buyer or the importer for carrying out trade under the terms and conditions laid down. The purchase order letter contains information about the type of goods, quality of goods and other terms of trade.
j. What is the world trade organization [WTO]. Mention its objectives and functions.
Ans. World trade organization
World trade organization is an international organization. It was established on first janurary,1995 in order to solve the various exiting problems and hindrance or barriers in international trade among the countries. Its main aim is to operate international trade in a systematic way-simply trade,reduce custom duty, maintain discipline and standards, develop and implement rules of trade relation and solve the trade problems among the countries. It deals with the rules of trade among the nations. It helps in liberalizing trade and cover trade in goods and service. It deals and settles a dispute related to international trade. It is a forum for different countries governments to negative a trade agreement and settle trade disputes.
WTO is a legal and institution foundation of the multilateral trading system. It is the place where trade relatives among nations develop through collective debate,negotiation and settlement. It created by an international trade to operate as freely as possible by removing trade barriers raising the standard for living , promoting employment utilizing available resources of the world and assisting the member nations to eradicate their poverty. Nepal become the member of WTO on 23 April,2004. So far 148 countries have become members of the WTO. The major areas of WTO are trade in goods and services , trade related to investment,intellectual properly rights, and dispute settlement machanisms. WTOS’S early stage was GATT[General Agreement on Tariffs and Trade]
The objectives of WTO are as follow;
i. To raise the standard for living among member countries.
ii. To increase production and trade through optimum utilization of world resources.
iii. To increase and promote full employment.
iv. To develop the growth of trade.
The functions of WTO are as follows;
i. It administers and implement trade agreement.
ii. It acts as a forum for multilateral trade negotiations.
iii. It helps to settle trade disputes.
iv. It acts as a watchdog of national trade policy.
v. It acts as a consultant for world trade.