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Maharashtra State Board · HSC Commerce · Class 12 (Std XII)

Class 12 Economics Chapter 10: Foreign Trade of India

Short notes, key concepts, quick revision and practice MCQs with answers

This chapter explains internal and foreign trade, the three types of foreign trade and the role foreign trade plays in growth. It then looks at the changing composition, direction and recent trends of India's foreign trade, and ends with the ideas of balance of payments and balance of trade.

Key concepts: Foreign Trade of India

Internal trade
Buying and selling of goods and services inside the borders of one nation, also called domestic or home trade, e.g. goods from Maharashtra sold in Tamil Nadu.
Foreign trade
Trade between different countries of the world, also called international or external trade; it involves transactions between residents of different countries.
Import and export trade
Import trade is buying goods and services from another country (inflow); export trade is selling goods to another country (outflow).
Entrepot trade
Buying goods from one country, processing them and then selling them to other countries, e.g. Japan importing raw materials and selling finished electronic goods.
Composition of foreign trade
The kinds of goods a country exports and imports. India has moved from exporting primary products to exporting manufactured goods and from importing consumer goods to capital goods.
Direction of foreign trade
The countries to which a nation sends its exports and from which it gets its imports, that is, destinations of exports and sources of imports.
Balance of payments
A systematic record of all economic transactions between the residents of a country and the rest of the world over a given period, usually one year.
Balance of trade
The difference between the value of a country's exports and imports in a period. Exports above imports give a trade surplus; imports above exports give a trade deficit.

Quick revision: important points

Practice MCQs with answers

  1. Goods produced in Maharashtra are sold in West Bengal and Uttar Pradesh. This is an example of:

    1. Foreign trade
    2. Entrepot trade
    3. Internal trade
    4. Export trade
    Show answer

    Answer: C. Internal trade
    Trade within the borders of one nation is internal (home or domestic) trade.

  2. According to Wasserman and Hultman, international trade consists of transactions between:

    1. Residents of different countries
    2. Different states of one country
    3. Firms in the same local market
    4. The central bank and commercial banks
    Show answer

    Answer: A. Residents of different countries
    Their definition stresses that international trade takes place between residents of different countries.

  3. Which of these is NOT one of the three types of foreign trade?

    1. Import trade
    2. Export trade
    3. Entrepot trade
    4. Internal trade
    Show answer

    Answer: D. Internal trade
    Foreign trade is of three types: import, export and entrepot. Internal trade happens within a nation.

  4. India buying petroleum from Iraq, Kuwait and Saudi Arabia is an example of:

    1. Export trade
    2. Import trade
    3. Entrepot trade
    4. Home trade
    Show answer

    Answer: B. Import trade
    Purchasing goods from a foreign country brings goods into India, so it is import trade.

  5. Which statement best describes entrepot trade?

    1. Selling goods only within the home country
    2. Selling raw materials to a neighbouring state
    3. Buying goods from abroad only for home use
    4. Buying goods from one country and selling them to another after processing
    Show answer

    Answer: D. Buying goods from one country and selling them to another after processing
    Entrepot trade means importing goods, processing them and re-selling them to other countries.

All Class 12 Economics chapters

Class 12 Economics notes: all chapters