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Tuesday, 28 June 2011

Define warehousing? explain the various types or kinds and functions of Warehousing

The building or place where goods are stored is known as warehousing. There is a need to store for the product, until it is shipped to the customer.
A producer produces the product but all the product is not shifted quickly to the hands of the customers. It takes some time, there are also some other factors which are responsible for warehousing like utility and demand.

Definition of Warehousing :-
Robert Hughes has defined it in following words, "Warehousing is a set of activities that are involved in receiving and storing of goods and preparing them for reshipment."

Keeping in view the various definitions we may say that warehousing is not only concerned with storage facility it is also involved in various other activities like receiving, identifying, holding, assembling and preparing available to meet the demand.

Types or Kinds of Warehousing :-
There are two kinds of warehousing public and private :

1. Private Warehousing :-
These are owned or leased by the firm. A firm has complete control over its activities. It is used when a firm has special storage and handling needs. A firm uses it when it product is moving to large areas. Private warehousing is used by the firm which has high volume of goods.

2. Public Warehousing :-
These are operated by the professionals. They provide the services to the large number of firms. They charge the fee from the firms. A firm may choose the warehousing, keeping in view the location and fright rates. There is no fixed investment involved in it. Fixed costs are widely distributed among users. In this case managerial control is limited.


Functions of Warehouses :-
Following are the important functions of warehousing :

1. Receiving of Goods :-
It is the basic important function of the warehouse. When goods are handed over by the producer, it accepts the goods and assumes the responsibility to deliver the goods. It issues the receipts of goods.

2. Preparation of Record :-
The warehouse keeper checks the items of each shipment and prepares the record. All the record is maintained properly to avoid any problem at the time of delivery.

3. Identification :-
After receiving the goods warehouse keeper marks the each items separately. He may use the code number or he may attach the tag for identification. Due to identification one can easily separate the goods of different firms.

4. Storing :-
It is the major function of warehousing. The goods are kept safely in warehouse. Today all types of fruits are available in each season due to the storing facility. There is a proper protection of goods like food crops in the warehouses.

5. Packing :-
Packing of goods facility is also available in the warehouses. If the owner of goods requires such facility, it is provided by the housekeeper. He packs the goods in reasonable way according the size and quantity of goods.

6. Information About Receipt :-
A warehouse keeper checks all the received goods and informs about the total record of the goods to the concerned department. At the time of need all the information's can be provided to the customers.

7. Breaking of Bulk :-
Generally goods are delivered in bulk to the warehouse keeper. If owner wants that it may be converted in to small quantity, he may asks the keeper. The keeper packs the goods according the requirements of the customer.

8. To Search the Goods :-
It is also very difficult job for the keeper to search the particular item of a particular firm from the warehouse. But he performs the job very efficiently and provides the goods to the owner whenever he demands.

9. Delivery of Goods :-
It is last important function of warehousing. When the shipment is packed its documents are checked and prepared. After checking it is loaded over the transport.

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Discuss the external environment or external factors of the management? which affect the activities of management

EXTERNAL ENVIRONMENT :-
Those factors which affect the management from external side these are called external environment. No doubt a manager has very little control on them, but even then he pays special attention to them. A manager tries his best to reduce their affects. Following are the important external environments.

ECONOMIC ENVIRONMENT :-
When any business management is affected economical;ly by the environment, it is called economic environments.

1. Customer :- In a business activity customer has a very important role. Customer provides demand in the market without demand business cannot exist. If customer demands cars,then producer will produce the cars. If the customer is not ready to purchase the cycles, then no body will produce the cycle. So customer is a guiding star for the manager or producer.

2. Capital :- Every kind of management needs capital. It is not possible for the management that without capital it may purchase land, machinery, office and building. So capital affects the various decisions of the management. It is very important decision that business should be started on small scale or large scale. Now this decision is also made keeping in view the availability of capital.

3. Labour :- It is a productive factor and its importance can not be ignored in the business activity. If in any country skilled and cheap labour reduces the cost of production and encourages the business activity. Many items can be produced at a lower cost in Korea, China, Pakistan and Taiwan because wages are relatively low as compared to the advanced countries.

4. Competition :- When there are large number of producers of the same product, they will compete in the market. They will compete in price, quality and design. Such type of competition will affect the management decisions. So competition is also the external environment for the management decisions.

5. Govt. tax policy :- It is also the business environment if taxes rate is low, it reduces the cost and increases the purchasing power of the people. On the other side if tax rate is high, it increases the cost and price. So demand falls.

6. Credit policy :- Credit policy has also considerable impact on the business. If banks are ready to provide the credit on low rate of interest, it will improve the business activity. It also affects the management decisions.

7. Change in price :- A rapid change in price level affects the business seriously. It affects the out put, cost, demand and management decisions.

8. Availability of managers :- If qualified and capable managers are available in the business they will improve the quality of the product. It can reduce the cost and increase the rate of profit. A manager plays an important role in the business.


TECHNOLOGICAL ENVIRONMENT :-
It has also greater impact on the management decisions. It has different kinds. The use of techniques, inventions, tools and skill involves in the technology. Use of technology influences the quality, distribution, cost and sale of production.

POLITICAL ENVIRONMENT :-
It has also greater impact on the management. The political leaders change the law of business and regulations which affect the policies of the management. The changes in the attitudes of the political Govt. brings change in management decisions and it is known as political environment.

SOCIAL ENVIRONMENT :-
All the goods and services are produced for the society. As the demand, habits, likes and dislikes of the society change, it also bring change in the management decisions. So social environment is made up by the beliefs, attitudes, traditions and values of the people. It has great importance on the management.

LEGAL ENVIRONMENT :-
Every manager has also to obey the laws ans regulations at the national and local level. He respects and follows the decisions of the court . Managers are expected to know the legal restriction applicable to the business. So the legal environment also affect the management.

ETHICAL ENVIRONMENT :-
In every society some principles are formulated keeping in view the customs, beliefs and tradition of the people. These are not imposed by force on the people but they obey and respect these principles. The conduct and behavior of the people is checked keeping in view these principles. These principles of personal conduct are called ethical environment.

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Define Manager and what are their different types or kinds keeping in view the levels of management

Manager :-
Any person who controls all the activities of the business concern is called the manager of the organization. In the organization any head of the department is also known as the manager of his department. For example in the organization, there is production manager, sales manager and finance manager.


TYPES or KINDS OF MANAGERS
Managers can be classified on the following two bases.

A. Levels of Management.
B. Areas of Management.

A. LEVELS OF MANAGEMENT :-
Keeping in view the level managers can be divided in to three categories :

1. Top Level Managers :-
Chief executive, Chairman, Directors, Managing directors, General managers type people are included in the top level managers. They control the over all business of the organization. They are responsible to determine the objectives of the firm. They also formulate the policies to achieve these objectives. We may also call them upper level executives.

2. Middle Level Management :-
These are departmental heads in the organization. These are named finance managers and personal managers. They implement policies of the top level managers. They coordinate and supervise the activities of the low level managers.

3. Low Level Management :-
These are commonly known as supervisors, foremen and shift in-charge. These coordinate and supervise the activities of employees working in the firm. They solve the daily problems and motivate the workers to improve the quality of the product.
We can explain the level of management by the following chart :

Management Levels

Top Level :-
Chairman's, Chief Executive, Managing Directors, Directors, General Manager.

Middle Level :-
Production Managers, Sales Managers, Personal Managers, Finance Managers.

Low Level :-
Supervisor, Foreman, Shift In-charge.


B. AREAS OF MANAGEMENT :-
There are different kinds of managers on the basis of areas. These managers can be divided according their duties which they perform. Every manager performs the duties according to his area of specialization.

1. Finance Managers :-
All the financial activities of th4e organization are controlled by the finance manager. They are expert in mobilizing the resources of the firm. They are specialist to maintain the books of account and investment. They also know about the legal procedure of borrowing and lending. In this regard they complete all the legal documents to deal with the banks.

2. General Managers :-
These are also called administrative managers. They provide over all control on firm. They are not associated with any specific area. AA the managers relating to their specialized areas are controlled by the general managers. They coordinate the activities of all the managers of specialized areas. General Manager may called the captain of the ship. He provides guidance to the heads of various departments.

3. Operative Managers :-
Those managers who control the production process are called managers operation. They manage the system to convert the resources into goods and services normally they are engineers.

4. Personal Managers :-
These managers are engaged with human resource programs. They design the system to hire train to evaluate the performance of employees. They also ensure that organization follows the rules and regulations of the Govt. relating to employees rights.

5. Marketing Managers :-
These managers control the sale of the organization. They are expert in marketing research, advertising, distribution and sales promotion. These people play very important role for the organization because they create and increase the demand of the product.

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Monday, 27 June 2011

Define management and discuss the important functions of management

Management :-
Management is very important for any organization without proper management you cannot achieve the required objectives. It is an important force which coordinate the individual efforts. Any how, it is a controlling force in case of business, country or even for a family. It can be defined in the following words :

Definition of Management :- "Management is a process of coordinating the resources to meet the objectives."

Business Management :- "Business activity which directs and controls the organization and operations of a business enterprise is called Business Management ."

Manager :- "The person who controls the over all activities of the business, a firm or a department is known as manager."


Important Functions of Management

1. Planning :-
It is the basic function of the manager. There are various decisions which the management has to make the business. For example which business should be started? what should be produced? where should be produced? where should be sold? how resources should be granted? how resources should be allocated?

Determination of objectives and selections of policies to achieve these objectives involves in planning. Without planning, the management can not achieve its objectives. So it is the most important function of management.

2. Organization :-
It is the second important function after planning. Organization is a mean by which a manager co-ordinates the other factors of production. He combines the Land, Labour, Capital and other sources to produce the goods or services. Without effective organization a manager can not achieve his targets.

3. Staffing Up :-
To select a right man for right job is very important factor for the success. A manager has to select the efficient and healthy workers on proper places in the organization. It is a team work. If every member of the team is playing at his proper position then it can achieve its goal. So staffing involves filling the posts and assigning the jobs to the people according to their skill and ability in the organization to achieve the goals.

4. Leading :-
Effective managers needs to be effective leader. So leading is the main quality of the manager. A manager must influence and guide his employees to do the jobs according the demand of the organization. So leading is a process of guidance. This guidance can be provided by the manager through actual demonstration about the specific task or by his attitude.

5. Motivation :-
There is a need of motivation to achieve certain objectives of the organization. It is a process of providing the reasons for the workers to work in the best interest of the organization. For this purpose incentives are given to the people to motivate them for hard work.

6. Controlling :-
It is a process which measures the performance of organization against the targets determined in the plans. So controlled activities relate to the measurement of achievements. If the result is not up to standard then measures are adopted to correct the situation. Plans guide the managers in the use of resources to achieve specific goals. Controlling helps to achieve the objectives of plan.

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Discuss the various kinds of orders which stock broker may receive

Following are the important kinds of orders. Fixed price order, market order, open order, Discretionary orders, An immediate order and stop loss order.

1. Fixed Price Order :-
When the client gives instructions to the broker that certain shares should be purchased at a fixed price indicated in the order, it is called fixed price order.

2. Market Order :-
This order is called at best order. In this order specified price is not mentioned. But it is executed immediately at the best obtainable price.

3. Open Order :-
In this order time limit is not declared by the client that when his order should be executed.

4. Discretionary Orders :-
In this order client allows the broker to purchase the securities according to his own thinking keeping in view the reasonable price.

5. An Immediate Order :-
This order is executed at once at the best possible price by the brokers.

6. Stop Loss Orders :-
A client places this order to protect himself from the heavy fluctuations in the prices of shares. For example investor wants to dispose of his shares which were bought at Rs. 100. He may instruct the broker to sell 90 shares of Reliance Insurance at Rs. 80 stop. Now the loss client will stop at Rs. 20 per share. By replacing the order he has saved himself from the loss excess than Rs. 20.

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Describe the various types or kinds of speculators at stock exchange

These are some important kinds of speculators at stock exchange :

1. Jobber :-
Jobber is a professional speculator who has a complete information regarding the particular shares he deals. He transacts the shares of profit. He conducts the securities in his own name. He is the member of the stock exchange and he deals only with the members.

2. Broker :-
Broker is a person who transact business in securities on behalf of his clients and receives commission for his services. He deals between the jobbers and members our side the house. He is an experienced agent of the public.

3. Bull :-
He is a speculator who purchases various types of shares. He purchases to sell them on higher prices in future. He may sell the shares and securities before coming in possession. If the price falls then he suffers a loss.

4. Bear :-
He is always in a position to dispose of securities which he does not possess. He makes profit on each transaction. He sells the various securities for the objective of taking advantages of an expected fall in prices.

5. Lame Duck :-
When bear fails to meet his obligations he struggles to meet finance like the Lame Duck. This may happen when he has been concerned. Generally a bear agrees to dispose off certain shares on specific date. But sometimes he fails to deliver due to non availability of shares in the market. If the other party refuses to postpone the delivery them lame duck suffers heavy losses.

6. Stag :-
He is also a speculator. He purchases the shares of newly floated company and shown himself a genuine investor. He is not willing to become an actual shareholder of the company. He purchases the shares to sell them above the par value to earn premium. A stag also suffer a loss.

7. Contango :-
Contango means to came over dealing to the settlement. The broker is paid a reward to carry the settlement, it is also known as contango. It is paid the buyers, to the brokers. In some cases buyers in unable make the payment of securities on any particular date. So he requests the broker to carry on the dealing to the next settlement.

8. Backwardation :-
It is an interest which is paid by the sellers of securities to the buyers who wants to postpone transaction to the next account.

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Discuss those factors which influence or fluctuate the prices of stock exchange

Causes of Fluctuation :-
Following are the important causes which influence the price of shares ans securities in the stock exchange :

1. Demand and Supply :-
Demand and supply forces play a very effective role in fluctuating the prices. If there are more buyers of a particular security than sellers its price will rise. If the buyers are few but supply is greater than price will fall.

2. Political Condition :-
Stock exchange is a very sensitive market. Political disturbance and will also affect the prices of shares in the stock exchange.

3. Confidence of Public :-
If a government or any company looses the confidence of the public, then the prices of its securities and shares fall.

4. Reputation of the Firm :-
If the company enjoys good reputation in earning profit, its shares demand and price increases.

5. Bank Rate :-
When bank rate is low people borrow the money from the banks and purchase the securities. On the other hand when bank rate is high people purchase less securities.

6. Inflation and Deflation :-
In case of inflation prices of securities will rise. While in deflation price of shares and securities fall.

7. Directors Resign :-
In case of resignation of any director public looses the confidence and the price of company shares falls.

8. Experts Opinion :-
Stock exchange market experts opinion in press about the market also affects the price of various companies shares.

9. Speculators Activities :-
The policy of the speculators also influence the prices of shares. They sometimes begins to purchase the securities of a particular companies, to increase its prices.

10. Change in Fashion and Wealth :-
A sudden change in fashion and wealth influences the shares prices of the particular company. Because change in fashion will affect the profit of the company.

11. Strikes and New Taxes :-
Strikes of labour and new taxes also affect the business of stock exchange. It reduces the prices of shares.

12. Influence of Others Stock Exchange :-
If the price of one company shares increases in one stock exchange it will also affect the price of that company shares in other stock exchange.

13. Artificial Buying :-
Sometimes underwriters begin to purchase the number of shares to create the demand. So the prices of the concerned company will rise due to artificial buying.

14. Over Production :-
If a company faces the problem of over production then it may not declare a sufficient profit to the shareholders. So the prices of the shares will fall in the stock exchange.

15. Insurance Company Influence :-
Insurance companies are very influential in changing the prices of various securities. These are considered the greatest purchaser of the securities. If the insurance company sells the shares of any company then the prices of the shares will fall. If it purchases the shares of any company then their price will rise.

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Sunday, 26 June 2011

Difference or Distinguish between Life insurance and Fire insurance



We can distinguish between life insurance and fire insurance under the following heads :

1. NATURE OF CONTRACT :-
Life insurance : Life insurance is not the contract of indemnity.
Fire insurance : Fire insurance is a contract of indemnity.


2. DURATION PERIOD :-
Life insurance : Life insurance covers larger duration.
Fire insurance : Fire insurance duration is from 1 years to 10 years but it is renewable.


3. CREDIT FACILITY :-
Life insurance : Against the life insurance policy credit can be obtained.
Fire insurance : Against fire insurance policy credit can not be obtained.


4. TAX CONCESSION :-
Life insurance : In case of life insurance sometimes income tax concession is granted.
Fire insurance : In case of fire insurance income tax concession is not granted.


5. NATURE OF EVENT :-
Life insurance : The event of death which is considered the base in the contract of life insurance is death which is certain.
Fire insurance : In the fire insurance event fire is uncertain. It may take place or may not take place.


6. SECURITY AND INVESTMENT :-
Life insurance : Life insurance possess the element of security and investment both.
Fire insurance : Fire insurance includes the element of security only.


7. TITLE :-
Life insurance : The word Assurance is generally used along with life policy due ti its certainty.
Fire insurance : The word insurance is used along with fire due to its uncertainty.


8. INSURABLE INTEREST :-
Life insurance : Insurable interest must exist when insurance policy is taken but no need at the time of loss.
Fire insurance : Insurable interest must be present at the time of fire policy taken and at the time of loss.


9. DOCTRINE OF SUBROGATION :-
Life insurance : In the life assurance it is not applicable.
Fire insurance : In case of fire insurance it is applicable.


10. SHARE IN PROFIT :-
Life insurance : In a life insurance insured person also takes the share from profit.
Fire insurance : In case of fire insurance nothing is paid excess from insured amount.


11. TRANSFER OF LOSS :-
Life insurance : In case of loss insured person can not transfer the loss to insurance company.
Fire insurance : In case of fire insurance loss can be transferred to insurance company.


12. SURRENDER VALUE :-
Life insurance : Life insurance policy has a surrender value after three years of its existence.
Fire insurance : Fire insurance does not have any surrender value.


13. DETERMINATION OF PREMIUM :-
Life insurance : The life insurance policy premium determination is very simple and do not change
Fire insurance : Fire insurance premium rate changes according the change in risk.


14. CLAIM LIMIT :-
Life insurance : In the life assurance after maturity whole of the assured amount becomes payable.
Fire insurance : In fire insurance case only the actual value of the property destroyed by fire can be claimed.

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Difference or Distinguish between Life insurance and marine insurance

We can distinguish between life insurance ,marine insurance under the following heads :

1. NATURE OF CONTRACT :-
Life insurance : Life insurance is not the contract of indemnity.
Marine insurance : Marine insurance is a contract of indemnity.

2. DURATION PERIOD :-
Life insurance : Life insurance covers larger duration.
Marine insurance : Marine insurance is issued for a specified period but maximum period is not more than one year.

3. CREDIT FACILITY :-
Life insurance : Against the life insurance policy credit can be obtained.
Marine insurance : Against marine insurance policy credit can not be obtained.

4. TAX CONCESSION :-
Life insurance : In case of life insurance sometimes income tax concession is granted.
Marine insurance : In case of marine insurance tax concession is not granted.

5. NATURE OF EVENT :-
Life insurance : The event of death which is considered the base in the contract of life insurance is death which is certain.
Marine insurance : In marine insurance the event of sea perils may take place or may not take place.

6. SECURITY AND INVESTMENT :-
Life insurance : Life insurance possess the element of security and investment both.
Marine insurance : Marine insurance includes the element of security only.

7. TITLE :-
Life insurance : The word Assurance is generally used along with life policy due ti its certainty.
Marine insurance : The word insurance is used along with marine due to its uncertainty.

8. INSURABLE INTEREST :-
Life insurance : Insurable interest must exist when insurance policy is taken but no need at the time of loss.
Marine insurance : When the marine insurance policy is taken insurable interest may not exist but these should exist at the time of loss.

9. DOCTRINE OF SUBROGATION :-
Life insurance : In the life assurance it is not applicable.
Marine insurance : In case of marine insurance it is applicable.

10. SHARE IN PROFIT :-
Life insurance : In a life insurance insured person also takes the share from profit.
Marine insurance : In case of marine insurance not profit is paid.

11. TRANSFER OF LOSS :-
Life insurance : In case of loss insured person can not transfer the loss to insurance company.
Marine insurance : In case of marine insurance loss can be transferred to insurance company.

12. SURRENDER VALUE :-
Life insurance : Life insurance policy has a surrender value after three years of its existence.
Marine insurance : Marine insurance does not have any surrender value.

13. DETERMINATION OF PREMIUM :-
Life insurance : The life insurance policy premium determination is very simple and do not change
Marine insurance : Marine insurance premium rate changes according the change in risk.

14. CLAIM LIMIT :-
Life insurance : In the life assurance after maturity whole of the assured amount becomes payable.
Marine insurance : In case of marine insurance contract, shipping charges, plus 10% to 15% margin of anticipated profit and cost of goods destroyed by sea perils are payable by the insurance company.

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Explain the various types or kinds of marine insurance policy

Following are the main marine policies :

1. Voyage Policy :-
Under this policy subject matter is Insured for a specific voyage subject matter reaches to its destination safely then the responsibility of insurance company is finished case of loss due to sea perils. Insurance company compensates maximum to its insured amount.

2. Time Policy :-
Under this policy subject matter is insured for a specified period. But this period is not more than twelve months. If the cargo is damaged during this period the insurance company is responsible to compensate the loss.

3. Mixed Policy :-
This policy the combination of time and voyage policy. It covers the risk of both.

4. Block Policy :-
Gold diggers generally purchase this policy. It covers all the risks of damage to gold from the time of its recovery to arrival to its destination.

5. Valued Policy :-
In this marine insurance policy admitted value of the cargo is written in the policy itself.

6. Undervalued Policy :-
The value of cargo is not declared in the policy, In case of loss the value is assessed and insurance company compensates the loss.

7. Floating Policy :-
Regular supplier of goods generally purchase this policy. It covers the risks of several shipments. The name of any ship is not declared,whenever shipment takes place company is informed. An exporter saves himself from trouble of taking separate policy for every shipment.

8. Ship Builder's Risk Policy :-
Under this policy risk of damage to ship is covered from its construction to completion. This policy is issued for more than one year.

9. Port Risk Policy :-
This policy is purchased to cover all the risk of a ship when it is standing on a port for a particular period.

10. Special Danger Policy :-
This policy protects the insured against capture detention and war risks.

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What is Marine Insurance and discuss various principles of marine insurance

Definition of Marine Insurance :-
Templeman has defined the Marine Insurance in the following words ;
"A contract of indemnity whereby the insurer undertakes to compensate the insured against perils insured."

This policy is generally taken to obtain protection against the sea perils. Today marine insurance has played very effective role in promoting the international trade. Marine insurance covers almost all losses to the ship and Cargo while in sea or port. In each marine insurance contract insurance company undertakes to give coverage against loss due to marine perils on the payment of premium. The terms and conditions are written in a document which is called Marine insurance Policy.

Principles or Essentials of Marine Insurance

1. Utmost Good Faith :-
The contract of marine insurance depends upon the principle of utmost good faith. The insured should disclose all the facts about the goods. If the conceals any thing then contract becomes invalid.

2. Contract of Indemnity :-
Marine insurance is contract of indemnity. The insured can not claims unless he suffers a loss.

3. Insurable Interest :-
In the property, insured must have insurable interest. It must be present at the time of loss. For example, owner of the ship has insurable interest on the ship.

4. Good Paring :-
The Cargo must be packed properly and it should be in sound condition.

5. Proper Route :-
The ship must adopt the proper route which is specified in the policy. If a ship do dot adopts the proper route it is called deviation. It is only allowed in case of unfavorable conditions.

6. Legality of Voyage :-
The object of voyage must be lawful. For example a policy to cover the risk of smuggling is invalid.

7. Good Condition of Ship :-
The ship must be in a good condition and may be able to face the ordinary sea perils.

8. Competent Parties :-
The parties must be competent to make contract and contract should also be supported by a valuable consideration.

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Describe the various types or kinds of Fire Insurance policies

Types of Fire Insurance :-
Following are the important policies of fire insurance :

1. Valued Policy :-
Under the policy agreed value of the property is mentioned in the policy. In the event of loss by fire the insurer pays the admitted value of property. So in this policy value of property is predetermined.

2. Undervalued Policy :-
Under this policy the value of the property is not predetermined. In case of loss the value is computed by assessment.

3. Floating Policy :-
It is issued to cover the risk of various goods laying in different places. In this policy the insured amount may be changed with the rise and fall in the quantity of goods in the store.

4. Specific Policy :-
Under this policy the property is insured for a definite amount. In case of loss the stated amount will be paid to the policy holder.

5. Average Policy :-
Sometimes the insured insures the property less than the value of property. In that situation insurance company compensates the loss according to the proportion of original value of the property and insured amount.

6. Schedule Policy :-
Some people property is situated in various locations. So the policy which insure, the many properties in different areas under collective terms and conditions is called scheduler policy. Rate of premium and details are given in the same policy.

7. Standard Fire Policy :-
Such policy covers all the loss caused by lighting burning, earthquakes and floods.

8. Replacement Policy :-
Under this policy insurance company pays more than the actual value of the property destroyed by fire and also covers the cost of replacement.

9. Transit Policy :-
Transit policy is issued to transfer the goods carefully on its destination. If the subject matter is destroyed due to fire then company compensates the loss.

10. Profit Insurance Policy :-
Sometimes due to business closes for few days or for few months. Businessman looses the profit due to close of business. So this policy covers the profit which sustains due to fire. Insurance Company pays the profit on the basis of previous years average.

11. Rent Insurance Policy :-
Some times due to fire one shop or store damages. Now the owner of shop had already given.

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Define fire insurance and discuss the essentials of a valid fire insurance contract

Fire Insurance :-
Fire insurance is a contract between the policy holder and insurance company, in which the insurance company undertakes the indemnity caused by a fire to the particular property in the particular period. The premium is also fixed in contract. The insurance company will compensate the loss but not more than the insured amount.

Essentials or Principles of Fire Insurance

1. Insurable Interest :-
The insured must have insurable interest in the subject matter when the loss takes place. For example owner of the Car has insurable interest and not a driver.

2. Absolute Good Faith :-
All the facts about the subject matter should be disclosed by the insured to the insurer. The contract will be invalid in case of fraud.

3. Contract of Indemnity :-
It is a contract of indemnity. When the amount is claimed after the loss has occurred. Insurance company compensates the loss up-to the insured amount limit. If there is no loss than no claim is acceptable.

4. Personal Right :-
A man whose name is mentioned in the contract, he has a right to receive the insured amount from the company in case of loss.

5. Personal Contract :-
It is a personal contract between the insured and insurer. This contract can not be transferred without the consent of insurance company.

6. Direct Loss :-
It is a specified that loss by the fire should be direct and fire should be immediate cause of loss.

7. Particular Period :-
he contract of fire insurance is for a specific period, usually for a one year.

8. Description of Property :-
It is also an essential part of the contract . The location of the property should be described in the contract.

9. Premium Consideration :-
The policy must mention the sum of insurance and the rate of premium.

10. General Conditions :-
A prescribed form should be used for the fire insurance. Both parties should be competent to contract. The object of contract should be legal and not against the public interest.

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Saturday, 25 June 2011

Discuss the merits or advantages of life insurance

Advantages of Life Insurance :-
Following are the main advantages of life insurance :

1. Promotes Savings :-
The insured person saves the money to pay the premium of the policy. So it develops the habit of savings among the policy holders.

2. Financial Aid :-
After the death of a policy holder insurance company pays the insured amount to the heirs. So the family gets the financial aid to face many problems.

3. Planning for Future :-
Life insurance is very useful for the last age of a person. At that stage man cannot do any job so due to the availability of insured amount he can lead a good life.

4. Payment of Deceased Debts :-
Due to sudden death, the debts can be paid by the insured amount.

5. Profit Earning :-
Life insurance not only provides financial aid to the family of a deceased person but also gives profit on the capital.

6. Tax Concession :-
Sometimes Government provides tax concessions to the policy holders. It is also an advantage of life insurance.

7. Credit Facility :-
A policy holder can also obtain credit from various financial institutions against the life insurance policy.

8. Security and Peace of Mind :-
A policy holder feels security and peace of mind that in case of his sudden death, his family will not face the financial problem. The life insurance also provides relief and security to the dependents.

9. Lump Sum Payment :-
If the policy holder survives then insurance company pays him lump sum amount. He can purchase the house with the money or he can do any business. It is also an advantage of insurance company.

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Discuss the various types or kinds of life insurance

Kinds or Types of Life Insurance :-
Following are the different kinds of life insurance :

1. Endowment Policy :-

This policy is taken for fixed number of years. It also provides the benefit of getting the full amount of the face value of the policy in case a person remains alive to the end of the period. It is a most popular kind of policy. It has two kinds :

i. Unprofitable Policy :- According to this policy the insured amount will be paid but without profit.

ii. Profitable Policy :- Under this policy insurance company also pays profit with the insured amount. Its premium is generally higher.

2. Whole Life Insurance :-
In this policy period is not fixed. It is the assured amount which is payable after the death of policy holder to his heirs. Its rate of premium is low than others. It has also two kinds profitable and unprofitable insurance policy.

3. Term Insurance :-
It is issued for a fixed period, insurance company will pay the face value of the policy to the heirs. On the other hand if insured person survives in this period he gets nothing.

4. Group Life Insurance :-
This policy is introduced for giving an insurance coverage to the group of employees working in office or factory. These are issued without medical examination.

5. Joint Life Policy :-
This policy is obtained by two or more than two persons together. In case of death of one partner, the insured amount is paid to the partners.

6. Family Protection Policy :-
This policy is very useful for the family members. It issued for a specific period. If the insured person dies during this period, insurance company pays a specified amount to the heirs up-to a specified period monthly, quarterly or yearly. If the insured survives then he will get the insured amount.

7. Children Educational Policy :-
Parents may obtain the life insurance policy for their children. Its objective is to provide funds for their educational expenses.

8. Insurance of Last Survivor :-
This policy is obtained by two or more than two persons. The insured amount is paid when all the insured persons die. If one dies before the other then insured amount will not be paid.

9. Annuities :-
Generally it means annual payment. The insurance companies sell the policy named the life annuities. The buyers pay lump sum amount to the insurance company. The company undertakes to pay fixed amount each year for the entire of the annuity.

10. Accident Insurance :-
Some people obtain this policy to save them selves from the unexpected accidents. Insurance company pays the insured amount in case of accident death. In case of injury and disability insured person is paid according the condition of contract.

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What is the life insurance and discuss its principles and procedure of getting the life insurance policy

Life Insurance :-
Life insurance is a contract which provides financial protection to the heirs in case of death. An insurance company receives premium in exchange of taking this risk. If insured person remains alive during the particular period then insurance company returns the principle amount with interest.

Objectives :- The objective of life insurance is to provide the financial protection to dependents when the earning member dies.


Principles or Essentials of Life Insurance

1. Absolute Good Faith :-
The principal of absolute good faith is applied in the life insurance. Both the parties should disclose every fact before each other. Insured should also provide the correct information's about his health. It is a personal contract between insurer and insured.

2. Insurable Interest :-
For the validity of insurance contract of life insurance must be supposed by an insurable interest. At the time of policy taking, it must be present in life insurance. For example a husband has insurable interest on his wife and wife has also on husband. Insured amount is definitely paid in the life insurance policy. Principle of indemnity is not applied in life insurance.


Procedure of Getting the Life Insurance Policy

1. Personal Form :-
The person who wants to be insured should fill the form of proposal. He will provide the various information's like name, profession, health condition, date of birth, heirs name etc. He should write true facts otherwise contract will be invalid.

2. Medical Examination :-
As the insurance company receives the proposal form proposer will be medically checked up. After receiving the doctors report proposal will be considered.

3. Acceptance of Proposal :-
If the company is satisfied then it accepts the proposal and asks the proposer to deposit the premium. After the payment of premium insurance contract completes.

4. Issue of Policy :-
On the receipt of the premium insurance company issues the life insurance policy. Policy states the name policy number, contract date, amount and names of the nominated heirs.

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Friday, 24 June 2011

Define Re-insurance, Double insurance and Warranty


Re-insurance :-
The insurance company gets part of the risk insured with another insurance company, to avoid heavy financial losses is called as reinsurance.

Double Insurance :-
When a person gets his life or goods insured with more than one insurance company is double insurance.

Warranty :-
A warranty is defined by the Act in the following words. It an undertaking by the assured that some particular things shall or shall not be done or that some conditions shall be fulfilled or whereby he affirms the existence of a particular state of facts.

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Define Business Risk and explain its various kinds and and also discuss those methods which can be used to protect the risks

Business Risk :-
In every business there is a chance of loss, because future is uncertain. So business risks means the occurrence of those events which become the cause of loss in the business. A businessman earns the profit at the risk of loss. So risk is an essential element in business. While in business decision making means the evaluation of risks and profits involved in business activities.
There are large number of uncertain events in business like fall in demand, strike of workers, theft, break down of machinery etc.

KINDS or TYPES OF BUSINESS RISK :-
The risk may be classified in to various types. Following are the important kinds of risks :

1. By Organization.
2. By Occurrence Events.
3. By Nature.
4. By Controllable.
5. By Protection.

1. CLASSIFICATION OF ORGANIZATION :-
In this regard there are two types of risks :

A. Internal Risks :-
This risks of losses due to internal affairs of the business organization are called internal risks. These can be normally controlled by management.

B. External Risks :-
There are large number of external factors like fall in demand due to war or the change in fashion are called the external factors which become the cause of loss. So such type of risks of losses are called external risks. Normally these are beyond the control of an organization.

2. CLASSIFICATION BY OCCURRENCE EVENT :-
It has two kinds :

A. Property Risks :-
If due to any event property of the firm destroys it will be called property risks. For example if building of the firm destroys due to fire, it will be called property risk.

B. Liability Risks :-
Some time a firm held responsible for losses by any other firm or a person. Such type of losses risks are known liability risks. For example there is a firm which is providing food to the people now if one person eats the food and dies. Now a firm will be held responsible for such loss.

3. CLASSIFICATION BY NATURE :-
It can be classified in two types :

A. Speculative Risks :-
In this risk the chance of profit and loss both are involved. Each firm starts the business to earn a profit. It is the basic objective of each firm but due to some uncertain events and firm suffers loss. For example a firm produces a new product, now there is a chance that it may capture the market and earn a profit. On other aside if it fails to create the demand then it suffers a loss.

B. Pure Risks :-
In such types of risks there is no chance of profit and possibility of losses are pure. For example in case of destruction of ship there is a pure risk.

4. CLASSIFICATION OF CONTROL LIABILITY :-
It has following two kinds :

A. Controllable risks :-
If management of business can control the risks by making the favorable decision these are called controllable risks. For example there a loss due to the regular breakdown of electricity, this can be controlled by the management by using the generators of electricity.

B. Uncontrollable Risks :-
Some risks are beyond the control of management. For example war spreads in the world and a firm suffer a loss due to fall in the exports. Such type of loss is called uncontrollable.

5. CLASSIFICATION BY PROTECTION OF RISKS :-
In this case there are two types of risks :

A. Insurable Risks :-
If the risks can be controlled by purchasing the insurance policy it is called insurable risks. Such type of loss is covered by the insurance company. In such cases loss is shifted from insured to the insurance company. The losses which may occur due to the fire, accident or theft are included in the insurable risks. In case of insurable risks following conditions must be fulfilled.

1. The losses must be calculate able.
2. The loss must not be caused internationally.
3. The cost of insuring must be feasible.
4. There should be an insurable interest for the insured.
5. To get insurance there should be large number of similar cases.
6. Loss probability must be predictable.
7. Expected over loss should be spread over the total number of insured.

B. Non Insurable Risks :-
If we cannot purchase the insurance policy against any risk, it is called non insurable risks. For example if the price of cotton falls in the market due to any reason, and a businessman suffers a loss, such type of loss is not insurable.


PROTECTION METHODS OF RISKS :-
There is two types of protection methods of risks :
A. By Insurance Policy.
B. Non Insurable Methods.

A. By Insurance Policy :-
Management purchases the insurance policy to protect the business from losses caused due to risks. A firm or a person when pays a premium to the insurance company, risk of loss transfers to insurance company. In case of insurable risks, this method can be used.

B. Non Insurable Methods :-
When the risks are non insurable and these can not be protected by the insurance the other techniques can be used to protect these risks. These are following :

1. Precautionary Measures :-
In some cases it is not possible to avoid the risk the precautionary measures can be adopted to reduce the risk. For example in case of production proper planning should be made and market should be also tested. How the product will compete the market price , quality and quantity? Necessary measures must be taken to start the business.

2. Contingency Fund :-
To cover the unexpected losses companies set a side an amount from the current revenue to establish this fund compensates the loss from this fund. So by using this fund a firm saves itself from any financial loss.

3. To Avoid the Risks :-
Management can adopt the technique to minimize the chance of occurring any particular event which may cause the loss. All the risks can not be avoided but these can be minimized. So such policies are adopted which reduce the loss. For example there is a greater risk to send the product by air then by train. So the risk can be reduced by sending the product by train. Similarly when you introduce new product, there is a greater risk, so you may refuses to avoid the risk.

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Thursday, 23 June 2011

Define Working Capital and explain the factors which determine the amount of working capital

Working Capital or Circular Capital or Floating Capital :-
Working capital is the amount of fund which is converted in current assets of a business. A firm needs capital to pay for its current expenses such as payment to employees, raw martial, bills gas, electricity and cash in hands. The working capital is converted into cash through the sale of product. The cash which is received, it is again used to cover the operating cost of a firm. The cash remains in circulation and it is called circulating capital. A sum working capital is required in that business where the turnover is repaid like retailing. On the other hand if the rate of turnover is slow like the business or furniture then a large quantity of working capital is needed.

Factors Affecting Working Capital :-
Following are the important factors which affect the working capital :

1. Scale of Business :-
If the scale of business is larger then more amount f working capital will be needed.

2. Nature of Business :-
The need of the working capital also depends upon the nature of business. In the seasonal industries working capital is required in large amount than others.

3. Risk Factors :-
Risky business requires greater need of working capital than the less risky business.

4. Cost of Production :-
If the cost of production is high than working capital is also required in large amount.

5. Purchase and Sale methods :-
If a firm purchases the raw materiel on credit and sells the product on cash then less amount of working capital will be required.

6. Turnover :-
If the turnover velocity of the working capital is greater then lesser amount of working capital is needed.

7. Inflation and Deflation Case :-
In case of rising prices less working capital is needed on the other hand in case of falling prices greater working capital is needed.

8. Time of Processing :-
If it takes longer time in manufacturing of the product then a greater amount of working capital is needed.

9. Quickly Sale-able Product :-
If the product is quickly sale-able for cash then the amount of working capital is needed. On the other hand greater amount will be needed.

10 Size of Labour :-
If a large number of workers are employed in any business then a large amount of working capital will be needed.

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What is Debt finance and discuss the types or kinds of business finance

DEBT FINANCING :-
When we meet the financing needs by borrowing it is called debt financing. It is obtained if we owned capital of a firm is not sufficient to meet the business needs. Sometimes loan is obtained to save the business from dissolution and sometimes to meet the urgent expenses. Loan is obtained from creditors for short term for long term and for medium term.

Types of Business Finance :-
Following are the important types of business finance :
1. Short Term Finance.
2. Medium Term Finance.
3. Long Term Finance.

SHORT TERM FINANCE :-
This type of source is obtained for a period of one year or less than one year. It is required for the temporary needs of the business.

MEDIUM TERM FINANCE :-
The duration range of the intermediate term Finance is from one year to ten years. Short term and medium term loans is provided by the following agencies :

SOURCES OF SHORT TERM AND MEDIUM TERM FINANCE

1. Commercial Banks :-
The commercial banks receive the savings of the people and lend it for short term businessman. The bank advances the loan in the shape of cash or over draft.

2. Federal Government Agencies :-
Many agencies of the central bank provide loans to private business. Generally central bank authorizes them to advance loan in the emergency period.

3. Re-discounting Facilities :-
Central bank provides re-discounting facilities on 1st Class bills. The cash can be raised when bank loans are not available on simple terms.

4. Foreign Exchange Banks :-
These banks advance loans the large scale foreign business according to nationality.

5. Friends and Relatives :-
A number of persons borrowing from friends and relatives, for a short period. But this source is very limit.

6. Private Money Lender :-
Private money lenders like landlord and Sahukar also lends the money but their rate of interest is very high.

7. Finance Companies :-
These are specialized finance companies and they also lend the money for short and medium terms.

8. Cooperative Societies :-
These provide loans to rural areas for business on the security of land. These provide short term and medium term loans.

9. Consumption Credit Agencies :-
These companies provide the loans for consumption goods. Small businessman borrows the money for short and medium term from these agencies.

10. Finance Facility by Agent :-
Sometimes managing agents also provide short term finance to the concerned businessman.

11. Commercial Paper House :-
These financial agencies are formed to buy the promissory note of the small business and then resale them to the investors in the open market.

12. Partial Payment Method :-
Some producers sell their product on cash basis and others on installment basis. Some portion of the price is paid at the time of purchase and the balance is paid on installment basis. This method is also useful in providing short term finance.


LONG TERM FINANCE :-

This type of finance is required for a period more than ten years. The long term finance is used for the construction of building and machinery. Long term loan is provided by the following sources :


SOURCES OF LONG TERM FINANCE

1. Financial Institutions :-
There are various financial institutions which provide long term finance to the industry and business. For example in India, ICICI, IFCI and IRBI and in Pakistan, PICIC, IDBP,NIT and Insurance Companies are those institutions which provide long term loan.

2. Savings of the Company :-
A long term finance is also act by the savings of the company. A company does not distribute its all profit among the shareholders. They transfer some portion of the profit the reserve funds every year. So a company uses this saving for investment.

3. Proprietors Own Resources :-
The proprietor may meet the long term financial requirement by the following sources :
i. Joint stock company can issue the shares or debentures.
ii. Sole traders and partner can dispose off their private assets.
They can also use their profit.

4. New Partners :-
By inviting new partners in a firm the volume of capital can be increased. The new comers will contribute their share of capital in business but they will not participate the affairs of a business.

5. Underwriters :-
In obtaining the long term finance for a public limited company underwriters services can not be ignored. They undertake to dispose off the securities of the companies and receive commission for their services.

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Define Business Finance and describe the sources of business finance

BUSINESS FINANCE :-
According to George Terry, Finance consists of providing and utilizing the money, capital rights, credit and funds of any kind which are employed in the operation of an enterprise. So business finance means investing borrowing and spending of money with proper manners for the operation of a business.

IMPORTANCE OF BUSINESS FINANCE :-
For any successful business finance has a primary importance. Finance is life blood for business. No business can run smoothly without finance. There is a need of sufficient to achieve the desired results from the business activities.

SOURCES OF BUSINESS FINANCE :-
There are two sources of business funds :
1. Creditors
2. Owners.
Creditors provide the funds temporarily while owners provide the funds permanently.
Following are the important sources of Business Finance :

SOURCES OF FINANCE

1. Owners Financing or Equity Financing :-
If a firm needs the financial needs of a business from the funds supplied by the owners, it is called equity financing. When owner uses his own capital for current and fixed assets then he saves himself from the following problem.
a. He will not pay interest to any body because he has used his own capital.
b. He will not give the profit to any lender.
c. He will improve the quality of facing slumps.
d. For getting the loan he will not face any problem.
e. He will be able to control the business with full concentration.

2. None Company Equity Financing :-
If sometimes a proprietor is not able to meets financial needs from his personal capital and he is also not ready to borrow then he can increase the equity capital by admitting any trustworthy sound party in his business.

3. Company Equity Financing :-
By selling the ordinary shares, a company may obtain the equity capital. Comment stocks represent the ownership. The common stock holders have a right to receive profit declared by the company. They can also give vote and sell the shares in the market.

4. Financing Through Reserve Profit :-
To increase the owned capital of the firm a part of the profit is retained in the business. From this capital it can meet the financial needs easily. A firm can also use this part of profit for the expansion of business or to face the depression.

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Discuss the procedure of Exporting goods

Following are the important steps in the procedure of exporting :

1. Receipt of Indent :-
It is the first step that exporter receives the order of export or indent. Various information's are provided in the indent.

2. Acceptance of Indent :-
When the exporter receives the indent then he studies the conditions of the indent. If these conditions are acceptable then he informs the importer.

3. Export License :-
After the acceptance of indent exporter obtains the permission from the controller of import and export. It is called export license.

4. Receipt of Inquiry :-
Exporter may receive an inquiry from overseas buyers about the price and other terms and conditions. The exporter should also send the quotations giving full details about price, insurance and packing.

5. Packing and Forwarding :-
The goods should be carefully packed and supplied according the advice of the importer.

6. Preparation of Invoice :-
Exporter prepares the invoice according the agreed price with the buyers after meeting all the formalities.

7. Custom Formalities :-
Next step is that Exporter fills in the shipping bill and present it to the port Traffic Manager.

8. Mates Receipts :-
An exporter obtains a docks receipt after delivering the goods to the dock. The goods can also be handed over to the mat of the ship. If the mat is satisfied then he issues clean Mats Receipt.

9. Bill of Leading :-
It is also received by the exporter on the receipt of the goods, bill of leading is signed by the master of ship. It is an official receipt of goods. It is also called a document or title of goods.

10. Securing of Payment :-
The exporter usually receives the payment by the following methods :
1. Drawing a bill of exchange.
2. By means of letter of credit.

11. End :-
If the importer is satisfied with the imported goods quality and quantity, then he informs to the exporter and procedures ends.

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Describe the procedure of importing goods or how the goods are imported

Following are the important steps in the procedure of importing :

1. Import License :-
Whenever any firm wants to import the goods it takes the permission from the Government which is called import license. Without import license no body can import the goods.

2. Sends Indent or Order :-
The trader sends an order r indent to the exporter. In which all the important information's about the goods which he wants are written.

3. Opening Letter of Credit :-
When the indent is accepted by the exporter then importer will open a letter of credit in his bank in favor of the exporter.

4. Exchange Rate Fixation :-
Importer has to make the payment in terms of foreign currency. So foreign exchange rate is also determined through the brokers.

5. Advice of Shipment :-
After dispatching the goods, exporter informs the importer through letter. In the letter all the information's about shipment are provided.

6. Payment of Bill :-
After the departure of the goods exporter advises to present the bill of exchange along with relative shipping documents to the importer. Importer makes the payment and receives the documents.

7. Delivery of Goods :-
Imported goods must be cleared through customs departments. If these are duty free then there is no problem for the importer. After the examination of imported goods and payment of duty importer will take the articles to his own store.
Generally the imported goods are cleared by the clearing agent of the importer at the port.

8. End :-
Importer check the imported goods, according the indent. If it is checked and found correct then he informs the export and this procedure of importing goods ends.

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Wednesday, 22 June 2011

Define Foreign Trade and discuss the role of foreign trade in the development of any country and discuss the importance of foreign trade

Foreign Trade :-
If an exchange of goods or services takes place between the citizens of the same country, it is called domestic trade.
When the goods and services are exchanged between the buyers and sellers of the two countries, it is called foreign trade.

CAUSES OF FOREIGN TRADE :-
Following are the important causes of foreign trade :

1. Monopoly :-
If a country is enjoying a monopoly in the production of a certain commodity. Then other countries have to import that commodity. For example Bangladesh have a monopoly in producing the jute so other countries are helpless to import jute where it is not produced.

2. Mutual Advantage :-
When there is a mutual advantage of two countries in importing and exporting the goods then foreign trade takes place.

3. Difference in Natural resources :-
Different countries differ in natural resources. They have comparative advantage in producing a particular commodity. So they export that commodity and import the others according to their requirements. In this way international trade takes place.

4. Difference in Cost :-
When in any country if a particular commodity can be produced on lower cost as compared to the other countries then interaction trade takes place.

ADVANTAGES OF FOREIGN TRADE :-
Foreign trade plays very important role in the economic development of any country. All the countries in the world also exports a lot of product to other countries and imports the capital goods from other countries. The role of foreign trade can be judged by the following facts :

1. Market Expands :-
The demand factor plays very important role in increasing the production of any country. The foreign trade expands the market and encourages the producers. In South Asian countries home market is very limited due to poverty. So it is necessary that we should sell our product in other countries.

2. Increase in Investment :-
Foreign trade encourages the investor to increase the investment to produce more goods. So the rate of investment increases.

3. Removal of Monopolies :-
Foreign trade also discourages the monopolies. Whenever any monopolist increases the prices. Government allows the imports of goods to reduce the prices in the country.

4. Removal of Food Shortage :-
Pakistan is also facing the food shortage problem. To remove the food shortage Pakistan had imported the wheat in 1989. So due to foreign trade we are solving this problem from many years.

5. Agricultural development :-
Agriculture is the backbone in our economy. Foreign trade has played very important role for the development of our agriculture sector. Every year we export rice, cotton, fruits and vegetables to other countries. The export of these goods makes our farmer more prosperous. It in spires the spirit of development in them.

6. Increase in Employment :-
With the rise in the demand of goods, domestic resources are fully utilized and it increases the rate of development in the country.

7. Industrial Development :-
Now the share of industrial sector is increasing day by day in the exports. The Government has also provided various incentives to the industrialists to improve the exports of this sector. So the rate of industrial development has increased.

8. Specialization :-
There is a difference in the quality and quantity of various factors of production in different countries. Each country adopts the specialization in the production of those commodities, in which it has comparative advantage. So all the trading countries enjoy profit through international trade.

9. Foreign Exchange Earning :-
Foreign trade provides foreign exchange which can be used to remove the poverty by importing technology and capital goods.

10. Import of Consumption Good :-
Most of countries in the world imports the various consumption goods from the other countries which are not produced inside the country.

11. External Economies :-
External economies can also be achieved through foreign trade. The industries producing goods on large scale in their own country are enjoying the external economies due to international trade.

12. Rise in Natural Income :-
Foreign trade increase the scale of production and national income of the country.

13. Competition :-
The producers compete with foreign competitors in the price and quality of the product. This competition in foreign trade improves the quality and reduces the cost of production.

14. Useful for the World Peace :-
Today all the countries are tied in trade relations with each other. So foreign trade also prevails peace and prosperity in the country.

15. Import of Capital and Technology :-
The inflow of capital and technology in the less developed countries has increased the rate of economic development. Prof. Nurkse says that trade is an engine of economic growth.

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