NCERT Solutions for Class 11 Business Studies Chapter 11: International Business (NCERT 2026–27)
These Class 11 Business Studies Chapter 11 solutions cover International Business, the closing chapter of the NCERT Business Studies textbook (Reprint 2026–27). The chapter explains the meaning and scope of international business, how it differs from domestic business, the benefits it offers to nations and firms, the various modes of entering foreign markets, and the detailed export and import procedures with their documentation. Below you get exam-ready, step-by-step answers to all 8 short-answer and all 7 long-answer NCERT exercise questions, plus key terms, extra practice, MCQs, Assertion–Reason questions and FAQs.
Class: 11Subject: Business StudiesChapter: 11Chapter Name: International BusinessUnit: Business Finance and TradeSession: 2026–27
Chapter 11, International Business, studies business activities that cross national frontiers. It begins by distinguishing domestic (internal/home) business from international (external) business, and clarifies that international business is much broader than international trade because it also involves overseas production, foreign investment and the movement of capital, personnel, technology and intellectual property. The chapter explains why nations trade (unequal distribution of resources and geographical specialisation), how international business is more complex than domestic business, and the benefits it brings to countries and firms. It then describes the major modes of entry — exporting/importing, contract manufacturing, licensing and franchising, joint ventures and wholly owned subsidiaries — with their advantages and limitations. The final part details the complete export and import procedures and the key documents used in foreign trade.
Key Concepts & Terms
International business: all business activities that take place across national frontiers — it includes international trade in goods and services plus overseas production, foreign investment, and movement of capital, personnel, technology and intellectual property.
International trade vs. international business: international trade is only the export and import of goods and services; international business is a broader term that also covers production and marketing of goods and services abroad.
Reason for trade: countries cannot produce equally well or cheaply all that they need, due to the unequal distribution of resources and differences in productivity. Each nation specialises in what it can produce most efficiently (geographical/territorial specialisation) and trades for the rest.
Modes of entry: exporting & importing, contract manufacturing (outsourcing), licensing & franchising, joint ventures, and wholly owned subsidiaries.
FDI & portfolio investment: Foreign Direct Investment gives the investor a controlling interest by directly investing in plant, machinery and operations abroad; portfolio investment earns dividends/interest by acquiring shares or giving loans, without direct involvement in management.
Key documents: proforma invoice, letter of credit, certificate of origin, shipping bill, mate’s receipt, bill of lading / airway bill, marine insurance policy, bill of exchange (sight & usance draft), bill of entry, bank certificate of payment.
Important agencies/terms: DGFT, IEC number, RCMC, ECGC, Export Inspection Agency (EIA), duty drawback, C&F agent, IMF and WTO.
NCERT Exercises — Full Solutions
All questions below are reproduced verbatim from the NCERT textbook’s end-of-chapter Exercises. Answers are original, written in CBSE exam-ready style.
Short Answer Questions
1. Differentiate between international trade and international business.
ANSWERInternational trade refers only to the export and import of goods and services across national boundaries. It is a narrower concept limited to the buying and selling of products and services between countries.International business is a much broader term. It includes international trade, but it also covers a wide range of other cross-border activities such as overseas production of goods and services, foreign investment (FDI and portfolio investment), licensing and franchising, joint ventures and wholly owned subsidiaries, and the movement of capital, personnel, technology and intellectual property like patents and trademarks.In short, international trade is only one component of international business; every international trade transaction is part of international business, but not all international business is international trade.
2. Discuss any three advantages of international business.
ANSWERThree important advantages of international business are:(i) Earning of foreign exchange: International business helps a country earn valuable foreign exchange, which can be used to import capital goods, technology, petroleum, fertilisers, pharmaceuticals and other products that may not be available domestically.(ii) More efficient use of resources: When each country produces what it can make most efficiently and trades the surplus, the world produces far more goods and services than when every nation tries to produce everything itself. This benefits all trading nations.(iii) Prospects for higher profits and growth: Firms can earn higher profits by selling in countries where prices are higher, make better use of surplus production capacity, gain economies of scale, and overcome saturation and intense competition in the domestic market — thereby improving their growth prospects.
3. What is the major reason underlying trade between nations?
ANSWERThe fundamental reason behind trade between nations is that countries cannot produce equally well or as cheaply all that they need. This is because of the unequal distribution of natural resources among them and differences in their productivity levels, labour, capital and production costs.As a result, some countries are in an advantageous position to produce certain goods more effectively and efficiently than others. Each country therefore finds it beneficial to specialise in producing the select goods and services it can make most efficiently at home, and to procure the rest through trade with other countries (the principle of geographical/territorial specialisation). This division of labour is the major reason nations trade with one another.
4. Differentiate between contract manufacturing and setting up wholly owned production subsidiary abroad.
ANSWER
Basis
Contract manufacturing
Wholly owned subsidiary
Meaning
The firm contracts with local manufacturers abroad to get goods/components produced to its specifications.
The parent firm sets up or acquires a foreign company by making 100% equity investment.
Investment
Little or no investment in production facilities abroad.
Requires 100% equity investment in the foreign company.
Risk
Low investment risk; risk lies mainly in quality control.
High investment and political risk; parent bears all losses alone.
Control
Limited control; production done by independent local firms.
Full control over operations, technology and trade secrets.
Suitability
Suitable for firms wanting low-cost output without heavy investment.
Suitable for large firms with funds wanting complete control.
Thus, contract manufacturing is a low-cost, low-control mode, while a wholly owned subsidiary gives complete control but demands heavy investment and carries higher risk.
5. Why is it necessary for an export firm to go in for pre-shipment inspection?
ANSWERPre-shipment inspection is necessary to ensure that only good-quality products are exported from the country, which protects and enhances the country’s reputation in world markets.The Government has passed the Export (Quality Control and Inspection) Act, 1963 and authorised certain agencies to act as inspection agencies. If a product falls under the compulsory-inspection category, the exporter must get it inspected by the Export Inspection Agency (EIA) or another designated agency and obtain an inspection certificate, which is submitted along with the other export documents. This ensures the consignment meets the prescribed quality standards before it leaves the country. (Such inspection is not compulsory for goods exported by star trading houses, export houses, units in EPZs/SEZs and 100% EOUs.)
6. What is bill of lading? How does it differ from bill of entry?
ANSWERBill of lading is a document in which a shipping company gives its official receipt of the goods put on board its vessel and undertakes to carry them to the port of destination. It is a document of title to the goods and is freely transferable by endorsement and delivery. It is prepared in connection with the export of goods.Bill of entry is a form supplied by the customs office to the importer, to be filled in at the time of receiving the goods. It is used for the assessment of customs import duty and contains details such as the name and address of the importer and exporter, name of the ship, number of packages, description, quantity and value of goods, port of destination and customs duty payable.Difference: A bill of lading is issued by the shipping company and is used by the exporter as proof that goods were accepted for carriage; a bill of entry is supplied by customs and used by the importer to take delivery and pay import duty. The bill of lading is a document of title to goods, whereas the bill of entry is a customs document for duty assessment.
7. What is a letter of credit? Why does an exporter need this document?
ANSWERA letter of credit is a guarantee issued by the importer’s bank that it will honour the payment of export bills, up to a certain amount, to the bank of the exporter. It is the most appropriate and secure method of payment adopted to settle international transactions.Why the exporter needs it: Since the buyer is in a foreign country, there is a real risk of non-payment after the goods are shipped. A letter of credit assures the exporter that payment will be made by a reliable bank, so the exporter is protected against the risk of default by the importer. It gives the exporter the confidence to proceed with production and shipment, and also helps in obtaining pre-shipment finance from banks.
8. Discuss the process involved in securing payment for exports.
ANSWERAfter shipping the goods, the exporter secures payment through the following process:1. The exporter informs the importer about the shipment and prepares the documents the importer needs to claim title to the goods — certified copy of invoice, bill of lading, packing list, insurance policy, certificate of origin and letter of credit.2. These documents, along with a bill of exchange, are sent through the exporter’s banker with instructions to deliver them to the importer only after acceptance/payment of the bill of exchange. Submitting these documents to the bank for payment is called negotiation of the documents.3. The bill of exchange may be a sight draft (documents handed over only against immediate payment) or a usance draft (documents handed over against acceptance, with payment made on maturity after a specified period).4. The importer releases payment (sight draft) or accepts the bill for future payment (usance draft); the exporter’s bank receives the payment through the importer’s bank and credits it to the exporter’s account.5. The exporter need not wait for the importer’s payment — by signing a letter of indemnity, the exporter can obtain immediate payment from his own bank on submission of the documents. Finally, the exporter obtains a bank certificate of payment confirming that the documents have been negotiated and payment received as per exchange control regulations.
Long Answer Questions
1. “International business is more than international trade”. Comment.
ANSWERThe statement is correct. People often use “international business” and “international trade” as if they mean the same thing, but international business is a much broader concept.International trade means only the export and import of goods and services across borders. Historically it has been the most important component of international business, but it is only one part of it.International business includes international trade plus several other activities, such as:(i) Trade in services — international travel and tourism, transportation, communication, banking, warehousing, distribution and advertising have grown enormously.(ii) Foreign investments — both direct (FDI) and portfolio investments made in foreign countries.(iii) Overseas production — companies set up plants abroad to produce and market goods closer to foreign customers and at lower cost.(iv) Licensing, franchising, contract manufacturing, joint ventures and wholly owned subsidiaries, and the cross-border movement of capital, personnel, technology and intellectual property (patents, trademarks, know-how, copyrights).Since all these go far beyond the mere movement of goods, it is rightly said that international business is more than international trade — it comprises both the trade and the production of goods and services across frontiers.
2. What benefits do firms derive by entering into international business?
ANSWERDespite greater complexities and risks, firms derive the following benefits from international business:(i) Prospects for higher profits: When domestic prices are lower, firms can earn more by selling their products in foreign countries where prices are higher.(ii) Increased capacity utilisation: Firms that have set up production capacity in excess of domestic demand can use this surplus capacity by procuring orders from abroad. Larger-scale production leads to economies of scale, which lower per-unit cost and improve profit margins.(iii) Prospects for growth: When demand in the home market becomes saturated, firms can considerably improve their growth prospects by venturing into overseas markets where demand is rising.(iv) Way out of intense domestic competition: When competition in the home market is very intense, internationalisation may be the only way to achieve significant growth. International business acts as a catalyst of growth for firms facing tough conditions on the domestic turf.(v) Improved business vision: Going international is often part of a firm’s strategic management. The vision to become international comes from the urge to grow, the need to become more competitive, to diversify, and to gain the strategic advantages of internationalisation.
3. In what ways is exporting a better way of entering international markets than setting up wholly owned subsidiaries abroad.
ANSWERExporting is often a better mode of entering international markets than setting up a wholly owned subsidiary for the following reasons:(i) Easiest mode of entry: Compared with other modes, exporting/importing is the easiest way of gaining entry into international markets. It is far less complex than setting up and managing a wholly owned subsidiary abroad.(ii) Less investment of time and money: Exporting does not require firms to invest as much time and money as setting up manufacturing plants and facilities in host countries. A wholly owned subsidiary, by contrast, demands 100% equity investment.(iii) Lower foreign investment risk: Since exporting requires little investment in foreign countries, exposure to foreign-investment risk is nil or much lower. In a wholly owned subsidiary the parent bears the entire risk and all losses alone.(iv) Suitable for small and medium firms: Because it needs limited funds, exporting is well suited to small and medium-sized firms, whereas a wholly owned subsidiary is unsuitable for them as they lack the funds to invest abroad.(v) Lower political risk: A wholly owned subsidiary is subject to higher political risk, as some countries are averse to 100% foreign ownership. Exporting avoids this problem.For these reasons, firms usually begin their overseas operations with exporting and switch to other modes only after gaining experience.
4. Rekha Garments has received an order to export 2000 men’s trousers to Swift Imports Ltd., located in Australia. Discuss the procedure that Rekha Garments would need to go through for executing the export order.
ANSWERTo execute the export order, Rekha Garments would go through the following steps of a typical export procedure:1. Receipt of enquiry and sending quotation: On receiving the enquiry from Swift Imports Ltd., Rekha Garments sends a proforma invoice stating the price, quality, grade, size, weight, mode of delivery, packing and payment terms for the trousers.2. Receipt of order (indent): Once Swift Imports finds the terms acceptable, it places an order/indent describing the goods, prices, delivery terms and packing/marking details.3. Assessing creditworthiness & securing payment guarantee: Rekha Garments checks the importer’s creditworthiness and asks for a letter of credit from Swift Imports’ bank to guard against non-payment.4. Obtaining export licence: The firm ensures it has a bank account, an IEC number from DGFT, registration with the appropriate export promotion council (e.g., AEPC) for an RCMC, and registration with ECGC.5. Obtaining pre-shipment finance: It approaches its bank for pre-shipment finance to procure raw material, process, pack and transport the trousers.6. Production/procurement of goods: The 2000 trousers are manufactured (or procured) as per Swift Imports’ specifications.7. Pre-shipment inspection: If required, the goods are inspected by the Export Inspection Agency and an inspection certificate obtained.8. Excise clearance & certificate of origin: The firm obtains excise clearance (and may claim duty drawback) and a certificate of origin (useful for tariff concessions in Australia).9. Reservation of shipping space & packing/forwarding: Shipping space is reserved (shipping order obtained); goods are packed, marked and moved to the port via a railway receipt endorsed to the C&F agent.10. Insurance & customs clearance: Goods are insured against sea perils; the shipping bill and supporting documents are submitted to customs to obtain clearance, carting order, mate’s receipt and bill of lading.11. Preparation of invoice & securing payment: An invoice is prepared and attested; documents along with the bill of exchange are sent through the bank to secure payment, and finally a bank certificate of payment is obtained.
5. Your firm is planning to import textile machinery from Canada. Describe the procedure involved in importing.
ANSWERTo import textile machinery from Canada, the firm would follow these steps of a typical import procedure:1. Trade enquiry: The firm gathers information about Canadian exporters of textile machinery from trade directories/associations and sends a trade enquiry seeking their prices and terms. The exporter replies with a proforma invoice.2. Procurement of import licence: The firm consults the EXIM policy to check whether the machinery needs a licence, gets registered with DGFT, and obtains an Import Export Code (IEC) number to be quoted on import documents.3. Obtaining foreign exchange: Since payment is in foreign currency, the firm applies (in the prescribed form, with the import licence) to a bank authorised by the RBI’s Exchange Control Department to sanction the required foreign exchange.4. Placing order or indent: The firm places an import order/indent with the Canadian exporter, specifying price, quantity, grade, quality, packing, shipping, delivery schedule, insurance and mode of payment.5. Obtaining letter of credit: If agreed, the firm obtains a letter of credit from its bank and forwards it to the exporter as a guarantee of payment.6. Arranging for finance: The firm arranges finance in advance to pay on arrival of goods and avoid demurrage charges at the port.7. Receipt of shipment advice: After loading, the exporter sends a shipment advice with details of the shipment (invoice number, bill of lading number/date, vessel, port and sailing date).8. Retirement of import documents: The exporter sends documents (bill of exchange, invoice, bill of lading, packing list, certificate of origin, insurance policy) through banks; the firm retires them by paying (sight draft) or accepting the bill (usance draft) and the bank hands over the documents.9. Arrival of goods & customs clearance: On arrival, the carrier files an import general manifest; the firm (usually through a C&F agent) obtains a delivery order, pays freight and dock dues (port trust dues receipt), fills the bill of entry for duty assessment, pays customs duty, gets the goods examined, and finally the port authority issues the release order.
6. What is IMF? Discuss its various objectives and functions.
ANSWERThe International Monetary Fund (IMF) is the second major Bretton Woods institution (established 1945, operations began 1947) that aims to ensure the stability of the international monetary system — the system of exchange rates and international payments that enables countries to transact with each other.Objectives of the IMF:(i) To promote international monetary cooperation through a permanent institution.(ii) To facilitate the expansion and balanced growth of international trade, and thereby contribute to high levels of employment and real income.(iii) To promote exchange-rate stability and maintain orderly exchange arrangements among member countries.(iv) To assist in establishing a multilateral system of payments and to remove foreign-exchange restrictions that hamper world trade.(v) To give confidence to members by making the Fund’s resources temporarily available to correct balance-of-payment disequilibria.Functions of the IMF:(i) It acts as a short-term credit institution, lending to members facing balance-of-payment difficulties (as India did in 1991).(ii) It provides a mechanism for the orderly adjustment of exchange rates and discourages competitive devaluation.(iii) It serves as a reservoir of the currencies of member countries from which a borrower can draw.(iv) It provides technical and policy advice, surveillance and assistance to help members manage their economies and monetary systems.
7. Write a detailed note on features, structure, objectives and functioning of WTO.
ANSWERThe World Trade Organisation (WTO) came into existence on 1 January 1995 as the successor to GATT (the General Agreement on Tariffs and Trade) following the Uruguay Round. It is the only global international organisation dealing with the rules of trade between nations, with its headquarters at Geneva, Switzerland.Features: The WTO is a permanent, member-driven organisation; its decisions are binding on all members; unlike GATT it covers trade in goods and services as well as intellectual property; and it provides a forum for negotiation and a dispute-settlement mechanism.Structure: The Ministerial Conference (meeting at least once every two years) is the highest decision-making body; below it the General Council conducts day-to-day work and also functions as the Dispute Settlement Body and the Trade Policy Review Body; specialised councils handle goods, services and intellectual property; and a Secretariat, headed by the Director-General, supports the organisation.Objectives: (i) to raise standards of living and incomes and ensure full employment; (ii) to enlarge production and trade of goods and services; (iii) to ensure the optimal use of the world’s resources for sustainable development; (iv) to promote an integrated, more viable and durable trading system; and (v) to take special account of the needs of developing and least-developed countries.Functioning: The WTO administers trade agreements, acts as a forum for trade negotiations, settles trade disputes through its dispute-settlement mechanism, reviews national trade policies, assists developing countries in trade-policy matters through technical cooperation and training, and cooperates with other international organisations such as the IMF and the World Bank in framing global economic policy.
Extra Practice Questions
Short Answer Type Questions
Q1. Define international business.
ANSWERInternational (or external) business refers to those business activities that take place across national frontiers. It involves not only the movement of goods and services but also of capital, personnel, technology and intellectual property such as patents, trademarks, know-how and copyrights.
Q2. What is contract manufacturing? Name its three forms.
ANSWERContract manufacturing (also called outsourcing) is a form of international business in which a firm contracts with local manufacturers in foreign countries to produce certain components or goods as per its specifications. Its three forms are: production of components; assembly of components into final products; and complete manufacture of the products.
Q3. Distinguish between direct and portfolio foreign investment.
ANSWERIn direct investment (FDI), a company directly invests in plant, machinery and operations abroad and gains a controlling interest in the foreign company. In portfolio investment, the investor only acquires shares or gives loans to a foreign firm and earns dividends or interest, without getting directly involved in production or marketing.
Q4. What is a proforma invoice?
ANSWERA proforma invoice is the quotation sent by the exporter in reply to an enquiry. It contains details of the quality, grade, design, size, weight and price of the export product and the terms and conditions on which the export will take place.
Q5. What is meant by ‘invisible trade’?
ANSWERInvisible trade refers to the export and import of services, which are intangible. Because services cannot be seen or touched, trade in services such as tourism, transportation, banking and insurance is called invisible trade, as opposed to the visible trade in tangible goods.
Long Answer Type Questions
Q1. Explain the major differences between domestic and international business.
ANSWERInternational business is more complex than domestic business. The key differences are: (i) Nationality of buyers and sellers — from the same country in domestic business, from different countries in international business; (ii) Nationality of other stakeholders (suppliers, employees, shareholders) differs across nations; (iii) Mobility of factors of production like labour and capital is much lower across countries; (iv) Customer heterogeneity — international markets lack homogeneity due to differences in language, tastes and customs; (v) Differences in business systems and practices are far greater across countries; (vi) Political systems and risks vary widely and add risk; (vii) Business regulations and policies — tariffs, quotas, taxes and controls differ among nations; and (viii) Currency — international business uses different currencies, with fluctuating exchange rates adding foreign-exchange risk.
Q2. Discuss the advantages and limitations of licensing and franchising as a mode of entry into international business.
ANSWERAdvantages: It is a relatively easy, low-risk and inexpensive mode, as the licensee/franchisee sets up the business and invests his own money; the licensor/franchiser earns a royalty/fee as a percentage of production or sales; there are lower risks of takeover or government intervention because the business is managed by a local person; the local licensee/franchisee has valuable market knowledge and contacts; and only the parties to the agreement can use the trademarks and patents. Limitations: a skilled licensee/franchisee may start marketing an identical product under a slightly different brand, causing severe competition; trade secrets may get divulged to others if not properly maintained; and conflicts often arise over accounts, royalty payments and quality norms, sometimes leading to costly litigation that harms both parties.
Q3. Describe the advantages and limitations of joint ventures.
ANSWERA joint venture means establishing a firm jointly owned by two or more otherwise independent firms. Advantages: since the local partner also contributes equity, expanding globally is financially less burdensome; joint ventures make it possible to execute large projects requiring huge capital and manpower; the foreign firm benefits from the local partner’s knowledge of competitive conditions, culture, language, political and business systems; and the high cost and risk of entering a foreign market is reduced by sharing it with a local partner. Limitations: the foreign firm has to share its technology and trade secrets with the local partner, running the risk of these being disclosed to others; and the dual-ownership arrangement may lead to conflicts and a battle for control between the investing firms.
MCQs & Assertion–Reason
1. Business transactions taking place within the geographical boundaries of a nation are known as:
(a) international business (b) domestic (internal) business (c) invisible trade (d) entrepot trade
For each Assertion–Reason question, choose: (A) Both true and the Reason correctly explains the Assertion; (B) Both true but the Reason is not the correct explanation; (C) Assertion true, Reason false; (D) Assertion false, Reason true.
A-R 1. Assertion: International business is broader than international trade.
Reason: International business includes overseas production and foreign investment in addition to the export and import of goods and services.
A-R 2. Assertion: Countries trade with one another.
Reason: No country can produce equally well or as cheaply all the goods and services it needs.
A-R 3. Assertion: Exporting is the easiest mode of entering international markets.
Reason: Exporting requires 100 per cent equity investment in the foreign country.
A-R 4. Assertion: A letter of credit is a secure method of payment in international trade.
Reason: It is a guarantee by the importer’s bank to honour the payment of export bills up to a certain amount.
A-R 5. Assertion: A wholly owned subsidiary is suitable for all firms entering foreign markets.
Reason: Setting up a wholly owned subsidiary requires 100 per cent equity investment and carries high political risk.
Answer key: 1-(A), 2-(A), 3-(C), 4-(A), 5-(D).
Exam Tips & Common Mistakes
How to score full marks in this chapter
Learn the eight points of difference between domestic and international business (Table 11.1) — they are frequently asked. Memorise the five modes of entry with two advantages and one limitation each. For procedure questions (export/import), write the steps in correct order with the right document at each stage — proforma invoice, letter of credit, shipping bill, mate’s receipt, bill of lading, bill of entry. Keep the document definitions (bill of lading vs. bill of entry, sight vs. usance draft) crisp and contrasted. For IMF and WTO, present features, objectives and functions in clearly labelled points.
Common mistakes to avoid
Treating “international trade” and “international business” as the same — the latter is broader.
Confusing FDI (controlling interest) with portfolio investment (only shares/loans, no control).
Mixing up bill of lading (export, shipping company) with bill of entry (import, customs).
Confusing sight draft (documents against payment) with usance draft (documents against acceptance).
Listing export/import steps out of sequence or attaching the wrong document to a step.
Forgetting that exporting needs little investment, while a wholly owned subsidiary needs 100% equity.
Frequently Asked Questions
What is Chapter 11 of Class 11 Business Studies about?
Chapter 11, International Business, explains the meaning and scope of international business, how it differs from domestic business, its benefits to nations and firms, the modes of entering foreign markets (exporting, contract manufacturing, licensing/franchising, joint ventures, wholly owned subsidiaries), and the complete export and import procedures with their documentation.
What is the difference between international trade and international business?
International trade is only the export and import of goods and services. International business is a much broader term that also includes overseas production, foreign investment (FDI and portfolio), licensing, franchising, joint ventures, subsidiaries, and the movement of capital, personnel, technology and intellectual property across borders.
How many questions are in the Class 11 Business Studies Chapter 11 exercise?
The end-of-chapter Exercises in International Business contain 8 short-answer questions and 7 long-answer questions, all answered step by step on this page, along with extra practice questions, MCQs and Assertion–Reason questions.
