GLS UNIVERSITY

FACULTY OF COMMERCE
Semester 4
INTERNATIONAL TRADE
Question Bank
Unit 1:
Q.1. Multiple Choice Questions.
1. The exchange of goods and services are known as …………………………
a. Domestic Trade b. International Trade
c. Trade d. None of these.
2. Which of the following is not considered as factors of production?
a. Land b. Labour
c.Money d. Capital
3. Trade between two countries is known as ………….
a. External b. Internal c. Inter-regional d.None of Above
4. International Trade is most likely to generate short-term unemployment in:
a. Industries in which there are neither imports nor exports
b. Import-competing industries
c. Industries that sell to domestic and foreign buyers.
d. Industries that sell to only foreign buyers
5. Free traders maintain that an open economy is advantageous in that it provides all the following
except:
a. Increased competition for world producers
b. A wider selection of products for consumers
c. Relatively high wage levels for all domestic workers
d. The utilization of the most efficient production methods
6. Which of the following is not a benefit of international trade?
a. Lower domestic prices
b. Development of more efficient methods and new products
c. A greater range of consumption choices
d. High wage levels for all domestic workers
7. Which is not an advantage of international trade:
a. Export of surplus production
b. Import of defence material
c. Dependence on foreign countries
d. Availability of cheap raw material
8. Trade between two countries can be useful if cost ratios of goods are …………..
a. Equal b. Different c. Undetermined d. Decreasing
9. Foreign trade creates among countries ………………
a. Conflicts b. Cooperation c. Hatred d. Both a. and b.
10. All are advantages of foreign trade except ………….
a. People get foreign exchange
b. Cheaper goods
c. Nations compete
d. Optimum utilization of countries’ resources

Q.2. Fill in the blanks.

1. International Trade means trade between …………………. (Provinces/ Countries/ Regions)
2. Two countries can give from foreign trade if ………… are different. (Effect/ Tariff/ Cost)
3. ………….. encourages trade between two countries. (Different tax system/Reduced tariffs/
National currencies)
4. Drawback of protection system is ……… (Consumers have to pay higher prices/ Producers get
higher profits/ Quality of goods may be affected/ All above)
5. ………….. is a drawback of free trade. (Prices of local goods rise/ Govt. looses incomes from custom
duties/National resources are underutilized)
6. International trade is possible primarily through specialization in production of …… goods. (All/
One/ Few)
7. A country that does not trade with other countries is called …… country. (Developed/ Closed/
Independent)
8. Policy of Protection in trade ……… (Facilitates trade/ Protects foreign producers/ Protects local
producers/ Protects exporters)
9. The largest item of Indian import list is ……….. (Consumer goods/ Machinery/ Petroleum/
Computers)
10. Trade between two states in an economy is known as …… (External/ Internal/None)

Q.3. Answer questions in short.

1. Define International Trade.
:International trade is the exchange of capital, goods, and services across international borders or
territories.
2. Give any one difference between Domestic and international Trade.
: The exchange of goods and services between countries and across borders is referred to as
international trade. Domestic trade happens when this business is conducted inside of a country's
borders
3. Define Free Trade.
: international trade left to its natural course without tariffs, quotas, or other restrictions
4. What do you mean by Protection?
: policy of restraining trade between states (countries) through methods such as tariffs on imported
goods, restrictive quotas, and a variety of other government regulations
5. Give the meaning of exchange rate.
: the value of one currency for the purpose of conversion to another.
6. What are the types of exchange rate?
: There are two types of exchange rate systems: floating or fixed. A floating exchange rate is one in
which a currency's value is determined by market forces. A fixed exchange rate matches, “pegs”, the
value of the currency to: one currency, several currencies or even to a fixed amount of a commodity
7. Define appreciation of currency.
Currency appreciation is an increase in the value of one currency in terms of another.
8. Give the meaning of Depreciation of currency.
: Currency depreciation is the loss of value of a country's currency with respect to one or more
foreign reference currencies
9. What are the instruments of trade policy?
: Instruments of trade policy. Tariffs; Quotas; Other Non-tariff Barriers to Trade
10. what do you mean by gains from international trade.
: Gains from International trade refers to that advantages which different countries participating in
international trade enjoy as a result of specialization and division of labour

Unit 2:
Q.1. Multiple Choice Questions.
1. 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
2. ‘Infant industry argument’ in international trade is given in support of:
a. Granting Protection
 b. Free trade
c. Encouragement to export oriented small and tiny industries
d. None of the above
3. Terms of trade that relate to the Real Ratio of international exchange between commodities is
called:
a. Real cost terms of trade
b. Commodity terms of trade
c. Income terms of trade
d. Utility terms of trade
4. The main advantage in specialization results from:
a. Economies of large-scale production
b. The specializing country behaving as monopoly.
c. Smaller Production runs resulting in lower unit costs.
d. High wages paid to foreign workers.
5. Net export equals ……
a. Export * Import
b. Export + Import
c. Export – Import
d. Exports of service only
6. A tariff ………………….
a. Increase the volume of trade
b. Reduces the volume of trade
c. Has no effect on volume of trade
d. Both a. and c.
7. Terms of Trade of developing countries are generally unfavourable because …….
a. They export primary goods
b. They import value added goods
c. They export few goods
d. Both a. and b.
8. Terms of Trade 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.
9. Terms of trade between two countries refer to a ratio of …..
a. Export prices to import prices
b. Currency values
c. Export to import
d. Balance of trade to Balance of payments
10. Rich countries have deficit in their balance of payments ……..
a. Sometimes b. Never
c. Alternate years d. Always

Q.2. Fill in the blanks.

1. BOP means balance of Receipts and payments of …… (all banks/ State bank/ Foreign exchange by
a country/ Government)
2. Favourable trade means exports are ……. than imports. (More/ Less/ Neutral)
3. Net barter terms of trade is also known as …. Terms of trade.(Commodity/ Income/Utility)
4. ….. is not a factor affecting TOT. (Reciprocal demand/ Size of demand/ Price of demand)
5. If tariff is higher, then the imports will …… (Increase/ Decrease/ Same as before)
6. ……. has given the concept of reciprocal demand. (Mills/ Adam/ Ricardo)
7. ……… is the curve, which expresses the total demand for one good (imports) in terms of the total
supply of another good (exports). (Offer/ Official / Corporate)
8. Balance of payment is prepared by an economy ……. (Yearly/ Monthly/ Weekly)
9. …….. kinds of accounts are included in BOP. (2/ 3/4)
10. …….is not a type of disequilibrium in BOP. (Cyclical/ Seasonal/ Frictional/ Disguised)

Q.3. Answer questions in short.

1. Define Terms of Trade.
: the ratio of an index of a country's export prices to an index of its import prices
2. What are the types of terms of trade?
: Net Barter or commodity Terms of trade; Gross Barter Terms of trade; Income Terms of trade;
Single Factoral Terms of trade
3. Define income terms of trade.
The income terms of trade (ITT) is an index of the value of exports divided by the unit value (price) of
imports—the value of exports measured in terms of import goods
4. Give formula of Single factoral terms of trade.
: The purchasing power, in terms of the price of imports, Pm, of a country's factors, thus accounting
for both the net barter terms of trade and its own factor productivity, Ax, in production of exports:
SFTT = NBTT*Ax = (Px/Pm)*Ax.
5. State any two factors affecting terms of trade.
: : Changes in Factor Endowments: Changes in Technology: Changes in Tastes: Economic Growth:
Tariff: Devaluation
6. What is the crux of Marshall- Edgeworth terms of trade model?
: the Edgeworth box which allows the study of the interaction of two individuals trading two
different commodities. This type of analysis draws on the use of indifference curve analysis to
analyze this trading behavior.
7. Give the central theme of Mill’s Reciprocal demand theory.
: The point at which terms of trade are determine by the reciprocal demand of two countries, i.e.,
demand of country A for the goods of country B and demand of country B for the goods of country A
8. Define Balance of Payment.
: a country is the record of all economic transactions between the residents of the country and the
rest of the world in a particular period (over a quarter of a year or more commonly over a year).
9. Give any two reasons of disequilibrium in BOP.
: Economic Factors: (a) Imbalance between exports and imports. (ii) Political Factors: (iii) Social
Factors
10. State any three measures to correct disequilibrium in BOP.
: Following remedial measures are recommended: (i) Export promotion: (ii) Import: (iii) Reducing
inflation

Unit 3:
Q.1. Multiple Choice Questions.
1. The first classical theory of International Trade is given by …………………..
a. Keynes b. Adam Smith
c. Friedman d. Heckscher-Ohlin
2. In classical theory of International Trade, the exchange of goods and services takes on the basis of
………….. system?
a. Barter b. Money
c. Labour d. capital
3. If capital is available in large proportion and labour is less, then that economy is known as
……………..
a. Capital Intensive b. Labour Intensive
 c. Both a. and b. d. None of above
4. In Heckscher Ohlin theory, what is assumed to be same across the countries?
a. Transportation cost b. Technology
c. Labour d. capital
5. Opportunity cost is also known as ……………………
a. Next Best alternative b. Transformation cost
c.Both a. and b. d. None of above.
6. . Factor proportions theory is also known as the
a. comparative advantage theory. b. laissez faire theorem.
c. HeckscherOhlin theorem. d. product cycle model.
7. Trade between two countries can be useful if cost ratios of goods are:
a. Equal b. Different
c. Undetermined d. Decreasing
8. According to Hecksher and Ohlin basic cause of international trade is:
a. Difference in factor endowments b. Difference in markets
c. Difference in political systems d. Difference in ideology
9. The theory explaining trade between two countries is called:
a. Comparative disadvantage theory b. Comparative cost theory
c. Comparative trade theory d. None of the above
10. David Ricardo presented the theory of international trade called:
a. Theory of absolute advantage b. Theory of comparative advantage
c. Theory of equal advantage d. Theory of total advantage

Q.2. True or False.

1. Absolute advantage theory is given by Adam Smith. - True
2. Ricardo has supplemented Absolute advantage theory. – True
3. Heckscher and Ohlin have given comparative cost advantage theory of International Trade. - False
4. Multilateral trade means one country comes into trade with more than one country.- True
5. Opportunity cost means unforgiving cost. - False
6. Modern theory of International Trade is given by Ricardo. - False
7. 2×2×2 model of International Trade is known by Heckscher Ohlin model.- True
8. Transformation cost is also known as opportunity cost.-True
9. Gravity model of trade was first used by Jan Tinbergen.-True
10. Adam Smith advocated free trade and specialized .-True
Q.3. Answer questions in short.
1. Define absolute cost international trade.
: Absolute advantage is the ability of a country, individual, company or region to produce a
good or service at a lower cost per unit than the cost at which any other entity produces that
same good or service
2. What is comparative cost in international trade?
: It explains that “it pays countries to specialize in the production of those goods in which
they possess greater comparative advantage or the least comparative disadvantage.”
3. Explain briefly the 2 x 2 x1 model in international trade.
: Ricardo constructed a two-country, two-commodity, but one-factor model
4. Give any two assumptions of international trade.
: Technology is the same among countries, Labor and capital flow freely between sectors
5. Define Gravity Model of trade.
: gravity models predicts bilateral trade flows based on the economic sizes (often using GDP
measurements) and distance between two units.
6. Give two points to prove superiority of HO Theory over other theories.
 : it calculates the cost differences in terms of money, it makes fewer simplifying
assumptions
7. Define factor endowment.
: In economics a country's factor endowment is commonly understood as the amount of
land, labor, capital, and entrepreneurship that a country possesses and can exploit for
manufacturing
8. Define opportunity cost approach in international trade.
: As demonstrated famously by Gottfried von Haberler (1933), the principle of comparative
advantage in international trade can be couched in opportunity cost terms.
9. Define bilateral and multilateral trade.
: 'bilateral' referring to ties between two states and 'multilateral' referring to relationships of
more than two states,
10. Point out two weaknesses of Ricardo’s theory of international trade.
: Restrictive Model, Ignore transport cost

Unit 4:
Q.1. Multiple Choice Questions.
1. GATT was made in the year ………………..
a. 1945 b. 1947 c.1950 d. 1951
2. The new world Trade organization WTO., which replaced the GATT came into effect from____
a. 1ST January 1991
b. 1st January 1995
c. 1st April 1994
d. 1st May 1995
2. 5 banks of BRICS nations have agreed to establish credit lines in ….. currencies.
a. Legal b. Plastic c. Crypto currency d. National
3. Where was the 7th meeting of BRICS Trade Ministers held from 1 to 2 August 2017?
a. Shanghai
b. Beijing
c. Tokyo
d. Rio De Janeiro
4. What is the name of the SAARC satellite to be launched on May 5, 2017?
a. South Asia Satellite
b. South Asian Association Satellite
c. South East Asia satellite
d. SAARC satellite
5. Full form of SAFTA is ……………………..
a. South Asia Free Trade Agreement
b. South Asia Foreign Trade Agreement
c. South Asia Framework Trade Agreement
d. Both a and b
6. Which of the following commitments has not been made by India to WTO?
a. Reduction in tariffs
b. Increase in quantitative restrictions
c. Increase in qualitative restrictions
d. Trade related Intellectual Property Rights
7. The European Union was formally established on …..
a. November, 1993 b. April, 1995
c. January, 1997 d. May, 1996
8. SAARC was established in …..
a. 1980 b. 1985 c. 1990 d. 1995
9. NAFTA came into effect in …..
a. 1990 b. 1994 c. 1998 d. 2004
10. The dominant member state of OPEC is ……………..
a. Iran b. Iraq c. Kuwait d. Saudi Arabia

Q.2. Fill in the blanks.

1. Headquarter of WTO is in ………….. Geneva/USA/Germany.
2. Before WTO, ……………… was working instead of that. GATY/ GATR/ GATT.
3. …………….. round negotiations initiated the establishment of WTO. Uruguay/ Urdun/ Urbuny .
4. India had joined WTO in the year …………. (1995/ 1996/ 1997)
5. In …………….. , SAARC was established. (1985/ 1986/ 1987)
6. The first SAARC summit was organized at ….. (Dhaka/ Kathmandu/ Nepal)
7. …..is not a country in SAFTA. (India/ Nepal/ Pakistan/ USA)
8. …… countries are member of OECD. (34/ 35/ 36)
9. …… is not a country under OECD. (Norway/ Canada/ China)
10. ….. are the member states of European Union. (28/ 29/30)

Q.3. Answer questions in short.

1. What is the main objective of WTO.
: (1) to set and enforce rules for international trade, (2) to provide a forum for negotiating and
monitoring further trade liberalization
2. Give any two functions of WTO.
: It oversees the implementation, administration and operation of the covered agreements. It
provides a forum for negotiations and for settling disputes
3. Give full form of TRIPS and TRIMS.
: The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), The Agreement on
Trade-Related Investment Measures (TRIMs)
4. Define Regional Trade Blocs.
: A trade bloc is a type of intergovernmental agreement, often part of a regional intergovernmental
organization, where barriers to trade (tariffs and others) are reduced or eliminated among the
participating states.
5. Which countries are included in BRICS?
: Brazil, Russia, India, China and South Africa.
6. Give the promoting policies of OECD.
: The Organisation for Economic Cooperation and Development (OECD) is an intergovernmental
organisation dedicated to promoting public policies which improve the economic and social well-
being of people around the world.
7. State any two benefits of European Unions.
: The European Union is a political and economic union of 28 countries. ... The aim of the EU is to
promote European harmony through creating a single market, enabling the free movement of
goods, services and people.
8. What is the role of NAFTA?
: North American Free Trade Agreement (NAFTA), controversial trade pact signed in 1992 that
gradually eliminated most tariffs and other trade barriers on products and services passing between
the United States, Canada, and Mexico
9. Give full form of OPEC.
: Organisation for Economic Cooperation and Development (OECD)
10. Give full form of SAARC .
: The South Asian Association for Regional Cooperation (SAARC)