Chapter 13- International Trade

by • 10/06/2011 • B.COM PART 1 Introduction to BusinessComments (0)884

Q1- Explain the meaning and objectives, and kinds of tariffs.


Tariff is system of duties which is set up to tax imported goods and less often on exports.


The system is used to achieve the following ends:

  • To increase the income of the government
  • To give protection to the local industries
  • To gain business benefits
  • To discourage competition
  • To pressurize other nations.

Kinds Of Tariffs:

Tariffs are of the following types:

Specific Duty:

This type of duty is imposed on the quantity, for instance, per kilo, per pound, per yard, or meter, or according to number.

Ad Valoerm Duty:

It is composed on the rupee value of the goods.

Compound Duty:

This type of tariff includes both kinds of duties. On certain goods partial specific and partial ad valorem duties are imposed.

Q2- What do you known about multinational companies? Describe various functions of these companies. What are the problems they face in foreign countries?


These are the companies which have sister companies or branches abroad. Philips, IBM, NCR, SINGER, ABBOT are some of them.

Multinational companies are the means of transferring the technology and play a key role in the international trade. They bring foreign investment into a country and offer jobs to the locals.


  • Economy Of Labor:

By establishing a sister company abroad, economy of labor becomes the most advantageous factor. This economy reduces the cost of production and increase the profit margin. To achieve this type of saving the US and other developed countries are pouring their investment into China and Korea where labor is abundant and cheap.

  • Availability Of Raw Materials:

Many of the developed countries are short of raw materials and natural resources. When these countries form their sister companies abroad they become able to get raw materials at quite lower rates.

  • New Markets:

Multinational companies not only seize the local markets but also have an access to neighborly and regional countries and thus they are able to expand their market and maximize sales volume.

  • Local Reason:

Another reason for multinational companies to invest abroad is their homeland problems that include unfavorable government policies, sever competition, pressure of labor unions, and fully satiated market. These local difficulties push them to access foreign countries where business conditions are extremely favorable offering them immense opportunities.


The following are the problems of multinational companies.

  • Language Problem:

The first and foremost problem that a multinational company faces is that of language which badly affects their business. This problem becomes more serious in developing countries where literacy rate is very low. Some companies have to use symbols and pictures to get over the problem.

  • Local Style & Habits:

The market for world goods become limited because of local style, preferences and habits. Therefore, it is necessary to institute local factors in the products. For example, in Pakistan, refrigerators should be tropicalized and television should have PAL system.

  • Local Culture, & Religion:

Local culture, fashion, and religion are major constraints for multinational companies. These are the factors which build values of a society. In Muslim countries, the business of liquor (wines etc) and pork is not allowed. Only kosher (Halal meat) can be sold and consumed.

  • Weather Differences:

The weather differences in the manufacturing and consumer countries badly affects their companies’ manufacturing and delivery schedules. When Pakistan has winter, Australia sees summer and this seasonal difference creates problems.

  • Lack Of Skilled Managers:

In developing countries the shortage of managers creates severe problem of smoothly operating business for multinational companies. If they hire managers from their original countries it becomes very costly.

  • Lack of Coordination:

Achieving coordination between the multinational company’s homeland and consumer countries becomes very difficult because of difference of culture, weather, laws, traditions, commercial practices and language.

  • Complexes:

Complexes or obsessions exist among nations on colors, wealth, and their past. Inferiority or superiority complexes are a major barrier creating hurdles to multinational companies.

  • Nationalism:

The local staffs working for multinational companies become a problem when they get enough experience of work and start resisting dictates from the head offices abroad.

  • Traditional Images:

It Is another hurdle in international trade. Every nation has strange images and feelings about the others which have nothing to do with realities. These superstitious images have a bearing on foreign trade policies.

Q3- What do you know about stock exchange? What are the various functions of stock exchange. Also describe its impact on economy of a country.


“The stock exchange is an organized market for purchase and sale of securities which include not only the industrial shares, stocks and debentures of the public companies but also the loans issued by public bodies, like government, municipal corporations etc”

The stock exchange facilitates a company to float its shares, that is, company intending to sell its share to the public finds it easy to sell them through stock exchanges.

Some of the famous stock exchanges around the world are these:

  • New York Stock Exchange
  • London Stock Exchange
  • Paris Stock Exchange
  • Frankfurt Stock Exchange
  • Sydney Stock Exchange
  • Wellington Stock Exchange
  • Karachi Stock Exchange
  • Bombay Stock Exchange
  • Kuwait Stock Exchange


Following are the various function of stock exchange.

  • Mobilized of Capital:

The idle capital is utilized by the services of the stock exchange. People are attracted to purchase the shares profitably offered  by the stock exchange. Thus mobilized capital plays an important role in the industrial and economic development.

  • Foreign Investment:

Foreign investment is attracted when foreigners are in the knowledge of the profitable prices of the blue chips companies offered at the stock exchange.

  • Economic Index:

Stock Exchange serves as a economic index. It shows the prevailing economic conditions in a country. It guides local and foreign investors to work out their investment plan and act accordingly.



In these days the benefits of stock exchange are well known to be mentioned. The stock exchange play a very important role in the modern economic system. It facilitates the movement of capital into production. The stock exchange provides a ready market where the stock and shares can be easily bought and sold.

The fact that the holder of shares can sell them for cash at any time with ease and convenience encourages the public to save and invest money in stock and shares.

The people would not hesitate to buy shares if they knew that they could withdrew their money by selling the shares, whenever required.

Every stock exchange admits dealings only in should scrips .Unsound scrips are not allowed to enter the stock exchange. To the extend the unsound scrips are not allowed to enter the stock exchange, the interest of the investors, most of whom are laymen and who cannot judge for themselves the merit of the investment is saved.

Moreover, the prices, which are quoted for shares and stocks on the stock exchange, are recorded and published for information and guidance of the outsiders. This enables the investors to know the true prices of the securities.


The combines effect of all these has been in the first place, to encourage saving and investment by the public. Secondly to make available and adequate capital, especially for production on a large scale.

In fact, the joint stock company business, which requires the investment of large capitals, would have remained impossible without the stock exchange the stock market serves as a barometer of general business conditions and exerts a very powerful influence on the economic development of a country.

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