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Correct option is (C) Political development of the nation

Correct option is (C) 47%

Europe’s share in India’s merchandise imports was 16% and in merchandise exports was 18% in the year 2014-15.

Pattern (direction) of export:

• In the same pattern in 1960-61, India’s exports to England constituted 26.8% of the total merchandise exports which reduced to as low as 4% after 2007-08.
• During the same period, India’s exports to USA declined from 16% of the total merchandise exports to 12.7% and that to Russia from 4.5% to 0.6%.
• Contrary of this, our merchandise exports to OPEC constituted 4.1% of our total merchandise exports in 1960-61 which gradually increased over years. After 2007-08 it increased to over 16% and during the same period merchandise exports to developing countries increased from 14.8% to 42.6% of the total merchandise exports. ‘ ‘
• From our total merchandise exports, those to Asian countries were countries were almost 50% in 2014-15.
• Thus, India has made several successful attempts to diversify her trade with different countries that too in different directions.

(A) Change in import structure:

• After 1991, the nature of trade changed significantly in India. The import of food grains and other agricultural goods and capital goods declined.
• The share of traditional exports like tea, coffee, jute etc. in total exports declined while that of industrial goods and non-traditional items increased. For example, India started exporting software.
• In 1961, the share of food imports in India’s total merchandise imports was 19.1% which declined to just 3.9% in 2014-15. This shows that India attained self-reliance in producing grains and other food items.
• As India developed, it started generating more more capital and capital intensive goods. So, India’s import of such items decreased significantly. In 1960-61, the share of capital intensive goods in India’s merchandise imports was as high as 31.7% which declined to 9.8% in 2014-15.
• In 1960-61, the import of new items was only 2.2% of the total merchandise. This increased to 46.5% in 2014-15. This shows that as India developed in a variety of sectors it needed more and more new types of items and so India’s imports of new types of items increased.

(B) Change in export structure:

• As India developed, the nature of export also changed.
• In 1960-61, the primary sector export consisted of 44.2% of total export. It reduced to as low as 12.3% in 2014-15. In this, the share of tea and coffee exports declined from 19.3% to 0.2% and that of jute export declined from 21% to 0.2%.
• Similarly, the share of leather products in exports declined from 4.4% in 1960-61 to 1.3%in 2014-15 and that of cloth declined from 10% to 2%.
• Against this, the export of readymade garments increased from 0.1% in 1960-61 to 5.4% in 2014-15.
• The share of manufactured goods in total merchandise exports was 45.3% which increased to 66.7% in 2014-15.
• In 1960-61, India exported only 1.1% of petroleum products. This increased to 18.5% in 1914-15.

Conclusion:
There is a considerable change in the foreign trade pattern since independence. India has developed significantly in all these years and hence both the volume and pattern of import and export trade have also significantly changed.

Magnitude of World Trade in Present Times:

Trends of world trade by World Trade Report, 2013 are as follows:

• Since mid-1800s, the world’s population has grown about 6 times. World output has grown up 60 times and world trade has grown over 140 times.
• Dramatic decrease in transport and communication costs and increase in geopolitics have played a decisive role in advancing and reinforcing today’s global trading system.
• In last 30 years world trade and commercial services have increased by 7 per cent per year on average.
• Between 1980 and 2011, the share of developing economies in world trade increased from 34 % to 47 % and their share in world imports increased from 29 % to 42 %.
• The Asian countries are playing an important role in world trade.
• For a number of decades, world trade has grown on average nearly twice as fast as world production which indicates the development of marketing system of world trade.
• During 1950-1973 average annual growth of world trade was 7.88%, which was reduced to 5 % during 2000-2011 and 2.8% during 2015- 16.

Need of foreign currency:

Currency of each country is different. For example, India’s currency is Rupee (₹), America’s currency is US Dollar ($), England’s currency is pound (£), and so on.

• When a foreigner comes to India, he cannot make payment in dollars or pounds to purchase products or services from our traders. He will have to make payment in Indian currency only.
• Similarly, when an Indian importer imports goods from a foreign country he will have to make payment to that country either in the currency of that country or in an internationally acceptable currency.
• To fulfill such types of transactions individuals and a country needs foreign currency.

Currency conversion:

• Foreign tourists or people involved in import/export will need to convert the currency they have either into currency of the country with which they wish ’ to transact or into internationally acceptable currency.
• Therefore, such tourists or traders approach banks or officially registered currency traders to convert their domestic currency into a foreign or internationally acceptable currency.
• Such conversion of currency done at a specific rate and at a specific time is known as the exchange rate.
• Exchange rate is the price of a foreign currency in terms of domestic currency. In other words, it is the units of home currency required to buy one unit of a foreign currency.

Surplus is said to be present in balance if the receipts are more than the of payments.

The current account records the credit and debit entries for:

1. Trade in merchandise goods (tangible goods) and
2. Trade in invisibles or services.

Unbalanced Balance of Payment:

When the entries on the credit side is not equal to entries on the debit side, Balance of Payments is said to be unbalanced.

An unbalanced Balance of Payments can be further classified as follows:

1. Deficit Balance of Payments:
   In the statement of Balance of Payments, if payments are more than receipts i.e. the value of credit side entries is lesser than the values of debit side entries, then there is a deficit in the Balance of Payments.
2. Surplus Balance of Payments:
   • In the statement of Balance of Payments, if receipts are more than payments i.e. the value of credit side entries is greater than the value of debit side entries, then there is a surplus in the Balance of Payments.
   • According to the double entry book keeping system, a balance of payments always balances. However, in reality there can be a deficit or a surplus in the balance of payments.

Unbalanced Balance of Payment:

When the entries on the credit side is not equal to entries on the debit side, Balance of Payments is said to be unbalanced.

An unbalanced Balance of Payments can be further classified as follows:

1. Deficit Balance of Payments:
   In the statement of Balance of Payments, if payments are more than receipts i.e. the value of credit side entries is lesser than the values of debit side entries, then there is a deficit in the Balance of Payments.
2. Surplus Balance of Payments:
   • In the statement of Balance of Payments, if receipts are more than payments i.e. the value of credit side entries is greater than the value of debit side entries, then there is a surplus in the Balance of Payments.
   • According to the double-entry book keeping system, a balance of payments always balances. However, in reality there can be a deficit or a surplus in the balance of payments.

When the entries on the credit side equals to that on the debit side.

Correct option is (A) Value of Indian currency declines in international market

Nature of imports/exports means composition of trade, that is, the types/ items of merchandise imports and exports.

Correct option is (C) 1980s

Reasons for international trade:

1. Different countries are endowed with different factors:

• Different countries are endowed or say blessed with different factors of production in different proportions.
• All the countries do not have all the necessary factors of production to meet their demands. Hence, the countries trade with other.countries for resources, factors of production and technology to fulfill their requirements.

2. Cost of production:

• Since the factors of production and resources are distributed unequally in the world, the cost of production of goods and services also varies in different countries.
• For example, if a factor of production is scarce in a country, the cost of production for some goods or services may be more. In such situation the country will procure those goods from other countries.

3. Technological progress:

• All countries do not achieve the same level of technological progress. Some countries have expertise in some type of technology while others possess greater ability in another type of technology.
• The difference in technologies becomes a reason for entering into international trade for purchasing or selling goods or services that require specific technological expertise.

4. Division of labour and specialization:

• Availability of labour, their productivity and skills varies from country to country. Moreover, entrepreneurial skills and efficiency also varies from person to person.
• So, some countries will have better man-management and production skills Where as some may have lesser.
• This difference wiH give rise to trade between countries for producing and selling goods and services.
• The country whose labour has lesser skills will purchase goods/services from countries which possess specialization.

Exchange rate:

• “The rate at which the currency of one country can be converted into currency of another country is called exchange rate”.
• “Exchange rate is the price of a foreign currency in terms of domestic currency”.

Example:

• Suppose, exchange rate of US $ 1 = ₹ 60. This means that in order to buy 1 US dollar, an Indian will have to pay ₹ 60. This also means that if an American comes to India, his 1 dollar will fetch him 60 rupees.
• A rise in the exchange rate for India means that the value of Indian currency has declined in the international market.
• This means that India will have to pay more Indian rupees to buy one unit of foreign currency. This also means that the foreign currency has become expensive and hence value of Indian rupees has fallen.
• Suppose, the exchange rate is US $ 1 = ₹ 60
• When exchange rate rises for India, US $ 1 = ₹ 65. When exchange rate falls for India, US $ 1 = ₹ 57.
• It should be noted that in reality, the actual analysis of rise or fall in the value of a currency, the time gap between the rise or fall in value of the currency, prices of goods in the various countries, etc. are taken into consideration for deciding the exchange rate.

Impact of exchange rate:

Rise or fall in exchange rate has a major impact on our import and export trade.

Impact on import:

When the exchange rate rises for India, the value of Indian rupee (₹) falls. So, India has to pay more rupees to purchase foreign goods i.e. importing becomes costlier. As a result, the demand for imported goods decline.

Impact on export:

In terms of export, when the exchange rate rises for India, India can export more quantity of goods in lesser amounts. This boosts export trade.

• For example, if earlier by spending US $ 1, a foreign trader could purchase goods worth ₹ 60, then now he can buy goods worth ₹ 65. Hence, export ₹ from India tend to rise.
• The reverse happens when exchange rate for India falls.

The receipts and payments of fixed capital are recorded in capital account of balance of payments.

1. Balanced Balance of Payment and
2. Unbalanced Balance of Payment]

Correct option is (C) Balance of merchandise (visible) trade

The activity of exchanging goods, services, technology etc. by a country from outside the geographical boundary is called international trade.

Correct option is (D) Land

• Historian Agnus – Maddison in the World Trade Report, 2013 states that since the mid-1800s, the world’s population has grown roughly 6 times, world production has grown 60 times, and world trade has grown over 140 times.
• According to this report, phenomenal reduction in transport and communication costs is the driving force behind today’s global trading system on such a huge scale.
• The report also says that strong relations between nations have also boosted world trade.
• In the last 30 years, world merchandise and commercial services trade have increased by about 7 percent per year on average.
• Between 1980 and 2011, developing economies could raise their share in world exports from 34% to 47% and their share in world imports from 29% to 42%. Asia is playing an increasing role in world trade.
• Since decades the world trade has grown nearly twice as compared to world production. This clearly states that world trade is rising quite fast. This also reflects that international supply chains and logistics are playing a very important role in delivering goods across the world at a much faster rate.

Average annual growth of world trade during different time periods

Trade in merchandise goods (tangible goods):

• The difference in values of imports and exports of a country is known as balance of trade.
• When a country’s import exceeds its export it is called negative balance of trade. If a country’s export exceeds its imports it is called positive balance of trade.

Balance of trade in Balance of payment:

• While writing accounts for Balance of Payments, receipts obtained by exporting items of trade are recorded as credit entry (i.e. a’+’ entry). Payments made for items imported are recorded as debit entry (i.e. a ‘-‘ entry).
• The sum total on this section of current account (i.e. the sum of credit’+’ entry and debit’-‘ entry; or say the difference of import and export) is called the balance of trade or simply trade balance.
• If the payments for merchandise imports (i.e.’-‘ entries) are greater than the receipts from merchandise exports (i.e.’+’ entries) then there is a deficit in the balance of trade. The vice versa situation is called surplus on the balance of trade.

Balance of Payments:

An accounting statement that shows the value of imports and exports of tangible (visible) and intangible (invisible) goods during a year is called Balance of Payments (BoP).

• Tangible or visible goods means goods which have a physical existence i.e. they can be touched and seen. Intangible or invisible goods means services such as software development, banking, logistics, etc.
• Balance of Payments has a credit entry and a debit entry. All receipts by the home country from foreigners are recorded in the credit entry side and all payments by the home country to foreigners are recorded in the debit entry side.

Types of Balance of Payments:

Balance of Payments can be either:

1. Balanced or
2. Unbalanced.

1. Balanced Balance of Payment:
When the value of entries on credit side equals that on the debit side, Balance of Payments is said to be balanced.

2. Unbalanced Balance of Payment:

When the /aiuS wf entries on the credit side is not equal to entries on the debit side, Balance of Payments is said to be unbalanced.

An unbalanced Balance of Payments can be further classified as follows:

1). Deficit Balance of Payments:

1. In the statement of Balance of Payments, if payments are more than receipts i.e. the value of credit side entries is lesser than the values of debit side entries, then there is a deficit in the Balance of Payments.

2. Surplus Balance of Payments:

• In the statement of Balance of Payments, if receipts are more than payments i.e. the value of credit side entries is greater than the value of debit side entries, then there is a surplus in the Balance of Payments.
• According to the double entry book keeping system, a balance of payments always balances. However, in reality there can be a deficit or a surplus in the balance of payments.

The items of exports which dominated the total exports of a country for a long period of time and export items produced by the traditional industries of a country are called traditional exports.

Import of goods like capital, technology etc. by a developing country to give a boost to her development process are called developmental imports.

Imports of spare parts, know-how, intermediate goods, petrol, energy goods which are made in order to maintain and sustain the process of industrialization and development undertaken by developing countries are called maintenance imports.

Reasons for International Trade:

• Difference in factors of production of a country
• Difference in cost of production
• Technological progress
• Division of labour and
• Specialization.

1. Difference in factor endowments in various countries,
2. Cost of production,
3. Technological progress, and
4. Division of labour and specialization.

1. Capability to undertake production of large variety of goods,
2. Good political and diplomatic relations with many countries,
3. Readiness to undertake several diplomatic engagements with other nations,
4. Ability and technology for setting up proper sales facilities, and
5. greater proportions of exportable surplus.

The total value and volume of merchandise (goods) and services that a country imports and exports is known as size of foreign trade or say size of international trade.

Every successive year, if the payments made towards imports and revenues generated from exports rise as well as the percentage of trade value rises in national income and the share of a country’s trade in world trade rises , then it can be concluded that the size the county’s foreign trade has increased.

Correct option is (D) All of these

Trade means a commercial/business activity which involves exchange of goods, services, resources, capital, technology, know-how, intellectual property, etc. In other words, trade is an activity in which suqh goods are exchanged for earning profit.

Size of foreign trade means, the total value and volume of merchandise imports and exports.

An accounting statement that shows the value of imports and exports of tangible (visible) and intangible (invisible) goods during a year is called Balance of Payments (BoP).

The rate at which the currency of one . country can be converted into currency of another country is called exchange rate. It is the price of a foreign currency in terms of domestic currency.

Direction of foreign trade means the trade relations of a nation with various countries in different regions of the world.

(A) The size of trade has increased and India’s rank in world trade has risen

Correct option is (C) Government announce decrease in the price of $1 in terms of rupees

1. Exchange rate,
2. Prices of tradable goods in home country and foreign countries,
3. Variety and quality of tradable goods,
4. Inevitable imports,
5. Level of economic development of the country,
6. Level of economic development of the country, legal restrictions on trade and
7. Trade supporting facilities and infrastructure.

Direction of foreign trade means the relations of a nation with various countries of the world.

• In order to develop trade relation with other countries ¡n various directions a country needs to fulfill following requirements:
• The country should have capability to undertake production of large variety of goods.
• Develop good political and diplomatic relations with many countries.
• Readiness to undertake several diplomatic engagements with other nations.
• Ability and technology for setting up proper sales facilities and trade mechanisms.
• Produce surplus quantities which can be exported.

(A) Pattern (direction) of import:

1. Our trade relations with England developed quite strong after the British started ruling India. This tradition continued even after independence. In 1960-61, 19% of our total merchandise imports were from England. However, the situation changed 2007 wherein India imported less than 2% things from England. ‘

2. After independence, we were quite dependent on America for our imports. In 1960-61, our imports from USA constituted 29% of our total merchandise imports. This fell to less than 8% after 2007.

3. With time, Indian industries started developing. So, we were in heavy need of petroleum based products. As a result, our merchandise imports from OPEC i.e. Organization of Petroleum Exporting Countries increased.

4. India had friendly relations with Russia and our imports from Russia were high after independence. This declined since 1980s after the economic crisis in Russia.

5. Over, time our trade with traditional partners started declining gradually and started increasing with other developing countries, especially with developing countries of East Asia, Central Asia and Africa. •

6. Our imports from other developing countries were about 11.8% of our total merchandise imports in 1960-61. This increased to 32% in 2007-08 and further to 59% in 2014-15.

(B) Pattern (direction) of export:

1. In the same pattern in 1960-61, India’s exports to England constituted 26.8% of the total merchandise exports which reduced to as low as 4% after 2007-08.

2. During the same period, India’s exports to USA declined from 16% of the total merchandise exports to 12.7% and that to Russia from 4.5% to 0.6%.

3. Contrary of this, our merchandise exports to OPEC constituted 4.1% of our total merchandise exports in 1960-61 which gradually increased over years. After 2007-08 it increased to over 16% and during the same period merchandise exports to developing countries increased from 14.8% to 42.6% of the total merchandise exports.

4. From our total merchandise exports, those to Asian countries were countries were almost 50% in 2014-15.

5. Thus, India has made several successful attempts to diversify her trade with different countries that too in different directions.

Foreign trade around the decade of 1950-60:

• A less developed economy imports things at a very high rate and in high volume in all the sectors.
• Between 1950 and 1960, India’s agriculture sector was quite weak and so it imported food grain quite frequently. During that period it also imported machines and spare parts, capital assets, technological know-how, etc. in very high quantity.
• In terms of exports, the less developed economies like India mainly exports goods belonging to agriculture or say primary sector. So, in the past, India mainly exported tea, coffee, jute, mineral ore, and minerals, etc. It did not export industrial goods in much quantity.

Import-Export of various items in 1960-61

The rate at which the currency of one country can be converted into currency of another country is called exchange rate, e.g., $ 1 = ₹ 65 means to buy $ 1 of US, an Indian resident must pay ₹ 65.

• A rise in the exchange rate for India means the value of Indian currency has declined in the international market.
• A fall in the exchange rate for India means the value of Indian currency has increased in the international market.
• If the exchange rate rises for India, then imports by India tends to decline and India’s exports tend to rise.

A rise in exchange rate for India means that the value of Indian currency has declined in the international market.

If the exchange rate rises for India and value of rupee falls, the demand for imports by India tends to decline and India’s exports tend to rise

• Rising imports is a sign that India is developing and so it is demanding more and more goods.
• Rising exports means India is able to produce exportable surplus of desirable quality and sell it at competitive prices in the world market.
• Size, Nature and Direction of India’s Foreign Trade

Reason for negative balance of trade:

• In the initial years of independence, India was an underdeveloped country. So, it imported more and exported less. This resulted, in negative balance of trade.
• After 1980, India started developing more. So, people started demanding more goods from the industries. Hence, it became necessary to import more and more goods to sustain, maintain and expand the large industries established in India.
• Moreover, the industries could barely meet the domestic demands so there was no surplus production that could be exported. So, again our balance of ‘ trade remained negative.
• After 1991, India’s exports increased significantly. To sustain in international competition, Indian industries started importing technology, petroleum, etc. in large quantity. Again our exports remained high compared to imports.
• Hence, since indepehdence our balance of trade has always remained negative.

Understanding the size, composition and direction of the county’s foreign trade is necessary to know:

• The trends and development of trade
• The efforts that a country puts to promote her trade in international market
• The relation of a country with other countries
• The quality of domestic production done to match international standards
• The competitiveness of domestic products in international market, etc.

Foreign trade around the decade of 1970-80:

• When a country starts developing, the proportion import of food grains tends to fall. The share of primary sector goods in total exports tends to fall and that of industrial goods tends to rise. India saw such trends in the decades of 1970 and 1980.
• When the country further develops its export trade increases. To maintain and increase the export i.e. to keep on producing items of export the country’s import for raw material, technology, spare parts, petroleum, etc. increases. These imports are necessary for the industries that produce goods for export. So, as India developed its export as well as import also increased