IGNOU

MBA

MMPC-03

IMPORTANT QUESTIONS AND ANSWERS

Q1) Describe the nature and scope of Business Environment. What are the various
types of Business Environment? Discuss giving examples.

A) Nature of Business Environment

The nature of business environment is as follows:

1. Complex: Business environment is compound in nature. Environment consists of a

number of factors, events, conditions and influences arising from different sources
which impact business thus making the business complex.

2. Interdependence: The environment of the business is made of social, economic, legal,

cultural, technological, and political factors. These factors of the environment are inter-
dependable. The economic status of a country affects the development of technology. A
rich country can make sufficient expenditure on the research and development.

3. Dynamic: Business environment is constantly changing process. Business

environment is dynamic as it keeps on changing in terms of technological improvement,
shifts in consumer preferences or entry of new competition in the market. The various
forces in the environment keep on changing from time to time thus making business
dynamic and not static.

4. Inter-relatedness: The different factors of business environment are co-related. For

example, let us suppose that there is a change in the import-export policy with the
coming of a new government. In this case, the coming of new government to power and
change in the import-export policy are political and economic changes respectively.
Thus, a change in one factor affects the other factor.

5. Impact: Business environment has both long term and short term impact.
Environment therefore has different effects on different firms in the same industry, for
example, drugs.

6. Uncertainty: Business environment is largely uncertain as it is very difficult to

predict future happenings, especially when environment changes are taking place too
frequently as in the case of information technology or fashion industries.
7. Relativity: It is a relative concept since it differs from country to country and region
to region. Political conditions in the USA, for example differ from those in China or
Pakistan. Similarly, demand for sarees may be fairly high in India whereas it may be
almost non-existent in France.

Identifies Business Opportunities and Threats

Business environment helps business in identification of various opportunities and

threats. When business is able to detect market opportunities timely, they can easily
take advantages of such opportunity at earliest. They can earn maximum returns by
availing such opportunity before the competitors. By proper interaction between
business and its environment all threats can be easily detected. It will enable business in
taking corrective measures timely.

Helps in Planning and Policy Formulation

Proper understanding of business environment helps in formulating better policies and

strategies. It conveys all current information regarding market conditions to business.
All opportunities and threats are scanned through the study of the business
environment. Businessmen are properly aware of environment and thereby take all
decisions according to it. Their entire plan can be changed effectively and efficiently
through environmental awareness.

Provides Useful Resources

Business depends on the environment in which they operate for several resources.
Business environment supplies several inputs like raw materials, capital and labour
which are used by the business for its operations. These inputs are converted into goods
and services for satisfying the needs of the market. Without proper supply of inputs,
business cannot continue its operations. It is fully dependent upon environment for
taking inputs and delivering the required goods or services.

Improves Performance

Business environment has an effective role in accelerating the overall performance of

business organisations. Through continuous environmental awareness, managers
update their knowledge and skills. Environmental study serves as the medium of
educating management. Monitoring of environment provides qualitative information
which helps in developing strategic thinking. It enables managers to adopt suitable
management practices to control and improve the performance of business.

Helps in Coping with Rapid Changes

Factors which constitute business environment are dynamic in nature. They keep on
changing continuously from time to time. These changes include changes in customer’s
preferences, fashion, technology, economic conditions etc.

Proper understanding of the business environment helps business in detecting all these
frequently occuring changes easily. It enables them in dealing with these changes
efficiently by taking appropriate actions at right time. Managers through continuous
monitoring of environment are sensitive to such changes and respond effectively.

Enhances Business Image

Business through proper understanding of its environment are able to improve its
public image. They are more responsive and sensitive to the environmental needs
through proper knowledge of business environment. Study of environment provides
them information for making realistic plans and implementing them effectively.
Businesses are able to provide better service and serve the interest of entire society.
People are happy with the business and develop confidence towards it. This enables in
developing a better image in market.

Top Management Structure: The structure of the organization also influences the
business decisions. The composition of the board of directors, the degree of
professionalization of management and the organizational structure of a company have
a important bearing on its business decisions.

Power Structure: The internal power relationship between the board of directors and
the Chief Executive Officer is an important factor. The extent to which the top
management enjoys the support of shareholders and employees at different levels, also
has an important bearing on decision making.

External Environment: External Environment refers to the factors existing outside a

business firm. These External factors are considered to be uncontrollable because the
enterprise has No or Partial control over these factors. Further, External Environment
can be divided into two types Namely:

Micro Environment: Micro Environment consists of the factors in the company's

immediate environment. These factors affects the performance of the company and its
ability to serve the customers. Micro Environment consists of the following:

Customers: Customers constitutes an important segment of the micro environment.

Customer is the king of the market and every business exists to serve its customers. A
business has no meaning until and unless there are customers to serve.

Suppliers: Suppliers are the person who supply various inputs such as money, raw
material, fuel, power etc. and help in the smooth conduct of business. Further, firms
should have more than one supplier so that changes in the policies of one supplier does
not effect their production schedules.

Competitors: Competitors form an important part of the Micro Environment. Business

Firms compete to capture a larger share in the market. They constantly watch the
competitors policies and adjust their policies to gain customer confidence.

Company Image And Brand Equity: The image and Brand Equity of the company plays a
very important and significant role in raising finance, forming alliances, choosing
dealers and suppliers etc.

Macro Environment: The Macro Environment consists of the Economic and Non-
Economic variables that provide opportunities and threats to firms. This is largely
uncontrollable and therefore, firms must adjust their operations to these environmental
factors. Macro Environment consists of the following:

Political Environment: Political Environment consists of the elements relating to

government affairs. The political environment provides the framework within which
business has to function. The main components of Political Environment are:

The Constitution of the Country.

Political Organization: includes Philosophy of political parties, ideology of the

government, nature and extent of bureaucracy, influence of primary groups etc.

Political Stability: includes structure of Military and police force, election system, Law
and order situation etc.

Foreign policy alignment or non-alignment.

Law Governing Business

Economic Environment: The Economic Environment consists of the economic forces

that affects the business activities. These forces influences the buying behavior and
spending patterns of consumers and institutions. The main components of Economic
Environment are:

Economic System: includes Capitalist, socialist and Mixed Economic System.

Economic Policies: includes Monetary Policy, Fiscal Policy, Supply side Policy etc.

Economic Indices: includes Gross Domestic Product, Consumer Price index, Per Capita
Income etc.

Financial Market: includes Share Market, Money Market, Derivative Market, Capital
Market.

Industrial Infrastructure etc.

Social And Cultural Environment: Social Environment refers to the characteristics of the
society in which a business firm exists and operates. The main components of social and
cultural environment are:

Demographic Forces: includes Size, Composition and Mobility of Population.

Social Institutions and Groups.

Caste Structure and Family Organisation.

Educational System and Literacy Rate.

Customs, beliefs, values and life styles.

Tastes and Preferences of People.

Entrepreneurial Spirit.

Technological Environment: Technology is changing at a fast pace and technological

environment is dramatically affecting the business environment either due to easy
import policies or because of technology up-gradation. The main components of
Technological Environment are:

Q2) Balance of Payments (BoP)

A) Balance Of Payment (BOP) is a statement which records all the monetary

transactions made between residents of a country and the rest of the world during any
given period. This statement includes all the transactions made by/to individuals,
corporates and the government and helps in monitoring the flow of funds to develop the
economy.

When all the elements are correctly included in the BOP, it should sum up to zero in a
perfect scenario. This means the inflows and outflows of funds should balance out.
However, this does not ideally happen in most cases.

A BOP statement of a country indicates whether the country has a surplus or a deficit of
funds i.e when a country’s export is more than its import, its BOP is said to be in surplus.
On the other hand, the BOP deficit indicates that a country’s imports are more than its
exports.

Tracking the transactions under BOP is something similar to the double entry system of
accounting. This means, all the transactions will have a debit entry and a corresponding
credit entry.

Why is Balance of Payment (BOP) vital for a country?

A country’s BOP is vital for the following reasons:

The BOP of a country reveals its financial and economic status.

A BOP statement can be used as an indicator to determine whether the country’s

currency value is appreciating or depreciating.

The BOP statement helps the Government to decide on fiscal and trade policies.

It provides important information to analyze and understand the economic dealings of a

country with other countries.

Current Account

The current account is used to monitor the inflow and outflow of goods and services
between countries. This account covers all the receipts and payments made with
respect to raw materials and manufactured goods.

It also includes receipts from engineering, tourism, transportation, business services,

stocks, and royalties from patents and copyrights. When all the goods and services are
combined, together they make up to a country’s Balance Of Trade (BOT).

There are various categories of trade and transfers which happen across countries. It
could be visible or invisible trading, unilateral transfers or other payments/receipts.
Trading in goods between countries are referred to as visible items and import/export
of services (banking, information technology etc) are referred to as invisible items.

Unilateral transfers refer to money sent as gifts or donations to residents of foreign

countries. This can also be personal transfers like – money sent by relatives to their
family located in another country.

Capital Account

All capital transactions between the countries are monitored through the capital
account. Capital transactions include the purchase and sale of assets (non-financial) like
land and properties.

The capital account also includes the flow of taxes, purchase and sale of fixed assets etc
by migrants moving out/into a different country. The deficit or surplus in the current
account is managed through the finance from the capital account and vice versa. There
are 3 major elements of a capital account:

Loans and borrowings – It includes all types of loans from both the private and public
sectors located in foreign countries.

Investments – These are funds invested in the corporate stocks by non-residents.

Foreign exchange reserves – Foreign exchange reserves held by the central bank of a
country to monitor and control the exchange rate does impact the capital account.

Financial Account

The flow of funds from and to foreign countries through various investments in real
estates, business ventures, foreign direct investments etc is monitored through the
financial account. This account measures the changes in the foreign ownership of
domestic assets and domestic ownership of foreign assets. On analyzing these changes,
it can be understood if the country is selling or acquiring more assets (like gold, stocks,
equity etc).

Q3) Describe the structure and working of the money market and capital market.

A) What is the Money Market?

A random course of financial institutions, bill brokers, money dealers, banks, etc.,
wherein dealing on short-term financial tools are being settled is referred to as Money
Market. These markets are also called wholesale markets.
In India, money markets serve an essential objective of providing liquid cash to
borrowers and fund providers for a small period of time, while keeping a balance
between the supply and demand short-term funds. The important money market
instruments in India today cover call money, commercial papers, certificates of deposit,
treasury bills, and forward rate agreements.
Money Market is a disorganised market, so the dealing is done off the public exchange
market, i.e. Over The Counter (OTC), within two bodies by using email, fax, online and
phones, etc. It supports the industries to accomplish their working capital demand by
circulating short-term funds in the economy.

What is Capital Market?

A kind of financial market where the company or government securities are generated
and patronised with the intention of establishing long-term finance to coincide the
capital necessary is called Capital Market.
In this market, the buyers use funds for longer-term investment. The nature of the
capital market is risky markets. Therefore, it is not used for short-term funds
investment. Most of the investors obtain the capital markets to preserve for education
or retirement.
This article is a ready reckoner for all the students to learn the Difference Between
Money Market and Capital Market.
Top 10 Differences between Money Market and Capital Market

Money Market Capital Market

Definition

A random course of financial institutions, bill A kind of financial market where the company or
brokers, money dealers, banks, etc., wherein government securities are generated and
dealing on short-term financial tools are patronised with the intention of establishing
being settled is referred to as Money Market. long-term finance to coincide with the capital
necessary is called Capital Market.

Market Nature

Money markets are informal in nature. Capital markets are formal in nature.

Instruments involved

Commercial Papers, Treasury Certificate of Bonds, Debentures, Shares, Asset Secularisation,

Deposit, Bills, Trade Credit, etc. Retained Earnings, Euro Issues, etc.

Investor Types

Commercial banks, non-financial institutions, Stockbrokers, insurance companies, Commercial

central bank, chit funds, etc. banks, underwriters, etc.

Market Liquidity

Money markets are highly liquid. Capital markets are comparatively less liquid.

Risk Involved

Money markets have low risk. Capital markets are riskier in comparison to
money markets.
 Maturity of Instruments

Instruments mature within a year. Instruments take longer time to attain maturity

Purpose served

To achieve short term credit requirements of To achieve long term credit requirements of the
the trade. trade.

Functions served

Increasing liquidity of funds in the economy Stabilising economy by increase in savings

Return on investment achieved

ROI is usually low in money market ROI is comparatively high in capital market

Q4) What is Technology Transfer? Give an example.

A) Technology transfer is an important part of the technological innovation process,

promoting scientific and technological research and the associated skills and
procedures to wider society and the marketplace.

Tech transfer allows research to develop from the discovery of novel technologies along
the value chain to disclosure, evaluation and the protection of these breakthroughs.
From here, marketing, licensing and further development of products allow the
research to become an impactful product, process or service for society. In addition, the
financial returns afforded by a successful product can be reinvested into further
research to begin the cycle again.

As a result, technology transfer creates revenues for universities to use for faculty
recruitment, funding and more research. Companies are able to tap into the advances
brought about by this academic research without having to spend on internal R&D to
create new products to drive business forward.

The advantages of successful technology transfer can be felt through national and
regional economies via growth through innovation, new ventures and stronger industry
to boost employment.
Finally, there are benefits for society as a whole, whether that is saving lives, better
health, a cleaner environment, and technical advances to deliver new capabilities,
products and services.

How Technology Transfer is Adapted by SMEs

Technology transfer is important for small and medium sized enterprises (SMEs), who
are able to utilise the process to help them compete with larger competitors. Rather
than having to pay for internal R&D, SMEs are able to form alliances with fellow
companies and research institutes to produce innovations, reduce financial risks or
share technologies.

SMEs adapt technology transfer to support their needs, address obstacles and
challenges, acquire and develop technologies and access new research that they can
take forward.

Using tech transfer methods allows SMEs to react to challenges and provide positive
contributions to technological advances, economic growth and their own ability to
innovate.

Examples

Examples of technology transfer can be found across virtually every scientific and
industrial area, from pharmaceuticals and medical devices to alternative energy
solutions, computing, transport, artificial intelligence, robotics, agriculture, aerospace,
environmental improvements and many more.

Many of the products and technological advances we take for granted in our everyday
lives came from university or institute research before being transferred to the
marketplace through technology transfer procedures.

Q5) How does technological advancement impact international business

environment. Discuss.

A) Telecommunications

Not so long ago, there was a time where writing letters was the only way to
communicate with your international business connections. These letters could take
days, weeks, and even months to reach their destination. But now, look at where
technology has gotten us! We’re able to send messages and emails instantly and interact
through platforms like Skype and Zoom.

Telecommunications technology is what makes running an international business

doable. It’s necessary for sending invoices, dealing with customers, communicating with
suppliers, and keeping in touch with employees that may live in other parts of the
world.
Social media

It could be said that social media is a branch of telecommunications, but it deserves

attention of its own as social media has given international business a platform from
which it can skyrocket. Social media keeps tabs on global trends in fashion, decor, art,
furniture, and a wide variety of other products, which provides international businesses
with impressive insight.

Whether it be Instagram, Facebook, Linked In, or others, having a social media account
allows international businesses to connect with their target audience worldwide and
advertise their products to them. Where once people would not be exposed to
businesses from other countries, social media has made it easier than ever to stumble
upon businesses from all over the world.

Transportation

There have been several major advances in transportation in the last 80 years or so. No
one wants to wait months for their international order anymore; that’s because
commercial jet craft has made transporting products to different areas of the globe
affordable and timely. Customers these days are all about instant gratification, so there
is a major emphasis on getting orders shipped as quickly as possible.

The explosion in air travel and airports worldwide has also made travelling for business
people more accessible and created a huge rise in the travel industry, creating
opportunities for many international businesses.

Production

If you’re an international business that sells products, you would have directly benefited
from the latest innovations in production. Technology has played a major role in the
production processes we know today and associated processes such as production
planning, financial planning, and marketing. Thanks to technology, companies may have
production and manufacturing plants in several different countries, and you can choose
where to create your manufacturing plant based on where materials are easily sourced
and where skilled labour is affordable.

Market globalisation

Market globalisation began forming its roots when it became more affordable and
feasible to transport and sell goods in different countries. The internet is seen as a low-
cost market globalisation network in an electronic form. Because of social media,
television, and the low costs involved in transporting products around the world, there
has become a sort of convergence in consumer preferences and tastes. For instance,
there was once a time when only Americans wore jeans, but now people worldwide are
interested in buying and wearing jeans, and that is how market globalisation works. The
same thing goes for brands such as McDonald’s, Pizza Hut etc.

A global culture is created in which different countries begin having similar lists of
wants and demands.
eCommerce

eCommerce platforms are platforms or websites that specialise in selling products

online, usually to an international audience. Over the years, we have seen many
advances in eCommerce technology. As a result, we are at a point where almost anyone
can make their own eCommerce site with very little trouble, thanks to all of the
templates and applications out there. This gives the average person, as well as multi-
million dollar corporations, the opportunity to have their goods online and available to
be sold.

eCommerce platforms are usually fully integrated with shipping, payment, customer
service, etc.

Online banking

Pay instantly with the click of a button! Technology has played a significant role in
online banking, and we have seen tremendous growth in just the past few years. Paying
online, no matter where you’re located in the world has truly become easier than ever
before, and there are so many options available to you! You can use your credit card,
payment solutions such as the popular Paypal, as well as digital currencies like Bitcoin
in some instances. In addition, exchange rates and payment fees have become lower,
making shopping internationally easy and affordable.

Whether you’re a customer buying a pair of shoes online or an international business

owner who needs to pay his suppliers and employees, online banking and payment
services have made payments exceptionally convenient.

Technology plays a major role in the security behind all online transactions.

The future of international business

Technology is always evolving, and things in the international business landscape won’t
ever stay the same for very long. While it is always impossible to predict the future
exactly, as business experts, we expect to see trends in international business leaning
more towards services than products, the inclusion of digital currencies as forms of
payment, and an emphasis on eco-friendliness and transparency.

Q6) What are the important elements of politico-legal environment? How does
the government regulate business? Discuss in detail.

A) he Form and Structure of the Government: It is a very important and decisive factor
for the business sector. Democracy states government of the people, by the people and
for the people.
At the enterprise level also people’s participation is very important. We authorize the
local Government to collect some business taxes and spend money on local activities,
when we accept the principle of democratic decentralization. Thus, the system of
government and the structure of administration affects business.

The Ideology of the Ruling Party: It influences ownership, management, structure and
size of business. The philosophy of the ruling party may help or hurt the course of
business activity.

The Strength of the Opposition: Opposition has a very important role in democracy.

The party which gets an absolute majority forms the government under the two party
system whereas, the party which gets a relative majority forms the Government with
the collaboration of some other political parties. The candidates who do not command
majority forms the opposition.

The strength of the opposition depends on whether the opposition parties are united or
divided. To protect, promote and regulate business in the best interests of society,
opposition is as important as a dedicated government.

The Role and Responsibility of the Bureaucracy: The work done by the Government is
through the bureaucracy Ministers change from time to time, but Government
administration must run without any break. Here the bureaucracy comes in.

The bureaucracy is very powerful in enforcing Government rules and regulations,

systems and procedures, licenses and restrictions.

The bureaucracy enjoys tremendous power in the context of a system environment

based on a host of controls and regulations. When the Government proposes
liberalization, relaxation of rules and regulations, streamlining of systems and
procedures, control becomes redundant and meaningless.

Political Stability: Business grows in a Politically stable region. Whenever the nation
becomes politically unstable, the flow of foreign capital and enterprise is adversely
affected, and this in turn effect the business, both.national and multinational.

The Velocity of Government Policies, Plans and Programs: If policies and programs are
stable then business can plan its activities. otherwise it faces a tremendous amount of
“non-market” risk and uncertainties. Stable policies help corporate planning and build
up business confidence.

Sometimes policies are formulated with a clear “direction” but at snail’s’ “speed” and
sometimes “speed” is fast but “direction” is not clear, we suffer on account of lack of
“velocity” of such policies and this affects business unfavorably.
When there are so many policies such as policy-thinkers, policy-planners, policy-
makers, policy executors, policy-adjudicators and so on, the business sector views
policies with suspicion. Policies once formulated have to be implemented.

Socio-economic Legislation’s: Laws are needed to protect consumers, workers,

managers, owners, shareholders and society at large. MRTP, FERA, IORA and so on are
some of the business legislation’s to maintain order in the industrial economy.
Industrial order and harmony is a condition for survival and expansion of business.

Politico-legal Institutions: These are the parts of the non-economic environment of

business’s. The functioning of the legislative, executive and judicial organs of the
Government affects business environment directly and indirectly.

Q7) Corporate Social Responsibility (CSR)

ACSR is an emerging concept, which is now adopted by most of the enterprises

throughout the world. It refers to the obligation of an enterprise towards the society.
Nowadays, customers are demanding that an enterprise should understand its
responsibility towards the society and people. CSR is also known as corporate
responsibility, corporate citizenship, responsible business, sustainable responsible
business, or corporate social performance.

CSR is defined in a publication, Making Good Business Sense by Lord Holme and Richard
Watts, as “Corporate Social Responsibility is the continuing commitment by business to
behave ethically and contribute to economic development while improving the quality
of life of the workforce and their families as well as of the local community and society
at large.”

The concept of CSR is based on the fact that an enterprise operates in the society and
uses its resources; therefore, it has some moral responsibility towards the society.
When an enterprise adopts the principles of CSR, it fulfills its responsibilities towards
environment, employees, communities, stakeholders, consumers, and other members of
the society.

The enterprise performs its responsibility by encouraging growth and development of

the community and surroundings. Moreover, the enterprise works towards the
elimination of unfair trade practices and other practices that negatively affect the
society and public interest, regardless of legality.

Now-a-days, CSR is based on the concept of people, planet, and profit; which means that
an enterprise should be focused on improving its performance in both financial and
non-financial areas. Most of the enterprises include CSR in their decision-making
process to ensure that their decisions do not affect the society in a negative way.

Corporate Social Responsibility – Importance

Society influences the growth of an enterprise to a large extent by providing raw
materials and human resource and buying goods and services produced by the
enterprise. An enterprise should take into consideration the relationship between
strategic management and CSR practices if it wishes to survive in the long run.

The strategy of the enterprise should be formulated keeping the mind the interest of the
society. Therefore, it has become imperative to know the reasons behind the growing
concerns of enterprises about social responsibilities.

The CSR is gaining importance because of the following reasons:

i. Public Expectations from the Enterprise – It refers to the anticipations of the people
associated either directly or indirectly with an enterprise. The enterprise can exist
peacefully, if it fulfills the needs, wants, and demands of the society. However, if an
enterprise fails to live up to the society’s expectations, its existence would become
difficult. Therefore, an enterprise should respond to the society’s needs if it wishes to
remain in the business in the long run.

ii. Better Environment for Business – It refers to providing a feasible environment for
business operations of an enterprise. If the society is satisfied with the business
activities of the enterprise, it creates a favorable environment for the enterprise.

iii. Good Public Image – It helps an enterprise to gain more customers and better
employees. Therefore, building and maintaining public image helps in improving the
performance of the enterprise.

iv. Responsibility with Power – It acts as an important area that should be balanced
properly. An enterprise enjoys a social power as its decisions have an impact on the
environment, consumers, employees, and many other areas of the society. Therefore,
any imbalance in the decisions may lead to a negative effect to the welfare of the society.

Q8) Distinguish between micro environment and macro environment

A) Definition of Micro Environment

Microenvironment refers to the environment which is in direct contact with the

business organization and can affect the routine activities of business straight away. It is
associated with a small area in which the firm functions.

The microenvironment is a collection of all the forces that are close to the firm. These
forces are very particular for the said business only. They can influence the
performance and day to day operations of the company, but for the short term only. Its
elements include suppliers, competitors, marketing intermediaries, customers and the
firm itself.

Suppliers are the ones who provide inputs to the business like raw material, equipment
and so on.
Competitors are the rivals, which compete with the firm in the market and resources as
well.

Marketing intermediaries may include wholesalers, distributors, and retailers that make
a link between the firm and the customers.

Customers / Consumers are the ones who purchase the goods for their own
consumption. They are considered as the king of business.

The firm itself is an aggregate of a number of elements like owners like shareholders or
investors, employees and the board of directors.

Definition of Macro Environment

The general environment within the economy that influences the working, performance,
decision making and strategy of all business groups at the same time is known as Macro
Environment. It is dynamic in nature. Therefore it keeps on changing.

It constitutes those outside forces that are not under the control of the firm but have a
powerful impact on the firm’s functioning. It consists of individuals, groups,
organizations, agencies and others with which the firm deals during the course of its
business.

The study of Macro Environment is known as PESTLE Analysis. PESTLE stands for the
variables that exist in the environment, i.e. Political, Economic, Socio-cultural,
Technological, Legal and Environmental. These variables, consider both economic and
non-economic factors like social concerns, government policies, family structure,
population size, inflation, GDP aspects, income distribution, ethnic mix, political
stability, taxes, and duties, etc.

Key Differences Between Micro Environment and Macro Environment

The following are the major difference between micro and macro environment:

The microenvironment is the environment which is in immediate contact with the firm.
The environment which is not specific to a particular firm but can influence the working
of all the business groups is known as Macro Environment.

The factors of the microenvironment affect the particular business only, but the macro-
environmental factors affect all the business entities.

The microenvironmental factors are controllable by the business but to some extent
only. However, the macroeconomic variables are uncontrollable.

The elements of the microenvironment affect directly and regularly to the firm which is
just opposite in the case of the macro environment.

The study of the microenvironment is described as COSMIC analysis. Conversely,

PESTLE Analysis is a study of the macro environment.
Q9) Differentiate between shares and bonds.

A) Shares vs bonds

What is the difference between shares and bonds? Those who have shares in stocks are
tantamount to being a part owner of the business. This means that the value of the
stocks that you bought will depend on how successful the entire business is. The profits
from the shares, however, will be divided properly among the shareholders.

Bonds, on the other hand, are certificates that bear interest rates. This is sold by the
government and other businesses to raise funds. The owner of the bond may gain profit
by collecting the interest of the bonds or he can sell his entire bond property. Bonds will
grow fonder if the companies that issued it are successful.

However, up until now, there are still so many people who still don’t have any idea what
the difference between owning shares in stocks and owning bonds. There are also so
many people who have already invested in stocks and bonds, but still do not understand
how the system really works. Some of the main differences between the two are their
risks, their safety and their rewards.

Comparing Stocks and Bonds

The difference between stocks and bonds is that stocks are shares in the ownership
of a business, while bonds are a form of debt that the issuing entity promises to
repay at some point in the future. A balance between the two types of funding must
be achieved to ensure a proper capital structure for a business. More specifically,
here are the key differences between stocks and bonds:

Priority of Repayment

In the event of the liquidation of a business, the holders of its stock have the last
claim on any residual cash, whereas the holders of its bonds have a considerably
higher priority, depending on the terms of the bonds. This means that stocks are a
riskier investment than bonds.

Periodic Payments

A company has the option to reward its shareholders with dividends, whereas it is
usually obligated to make periodic interest payments to its bond holders for very
specific amounts. Some bond agreements allow their issuers to delay or cancel
interest payments, but this is not a common feature. A delayed payment or
cancellation feature reduces the amount that investors will be willing to pay for a
bond.

Voting Rights

The holders of stock can vote on certain company issues, such as the election of
directors. Bond holders have no voting rights.

Shared Features of Stocks and Bonds

There are also variations on the stock and bond concept that share features of both.
The use of conversion features and the manner in which stocks and bonds are
traded are noted below.

Conversion Features

Some bonds have conversion features that allow bondholders to convert their
bonds into company stock at certain predetermined ratios of stocks to bonds. This
option is useful when the price of a company's stock rises, allowing bondholders to
achieve an immediate capital gain. Converting to stock also gives a former bond
holder the right to vote on certain company issues.

Trading on a Public Exchange

Both stocks and bonds may be traded on a public exchange. This is a common
occurrence for larger publicly-held companies, and much more rare for smaller
entities that do not want to go through the inordinate expense of going public.

Q10) What are the major functions of RBI?

A) Issue of Bank Notes:

The Reserve Bank of India has the sole right to issue currency notes except one rupee
notes which are issued by the Ministry of Finance. Currency notes issued by the Reserve
Bank are declared unlimited legal tender throughout the country.
This concentration of notes issue function with the Reserve Bank has a number of
advantages: (i) it brings uniformity in notes issue; (ii) it makes possible effective state
supervision; (iii) it is easier to control and regulate credit in accordance with the
requirements in the economy; and (iv) it keeps faith of the public in the paper currency.

2. Banker to Government:

As banker to the government the Reserve Bank manages the banking needs of the
government. It has to-maintain and operate the government’s deposit accounts. It
collects receipts of funds and makes payments on behalf of the government. It
represents the Government of India as the member of the IMF and the World Bank.

3. Custodian of Cash Reserves of Commercial Banks:

The commercial banks hold deposits in the Reserve Bank and the latter has the custody
of the cash reserves of the commercial banks.

4. Custodian of Country’s Foreign Currency Reserves:

The Reserve Bank has the custody of the country’s reserves of international currency,
and this enables the Reserve Bank to deal with crisis connected with adverse balance of
payments position.

5. Lender of Last Resort:

The commercial banks approach the Reserve Bank in times of emergency to tide over
financial difficulties, and the Reserve bank comes to their rescue though it might charge
a higher rate of interest.

6. Central Clearance and Accounts Settlement:

Since commercial banks have their surplus cash reserves deposited in the Reserve Bank,
it is easier to deal with each other and settle the claim of each on the other through book
keeping entries in the books of the Reserve Bank. The clearing of accounts has now
become an essential function of the Reserve Bank.

7. Controller of Credit:

Since credit money forms the most important part of supply of money, and since the
supply of money has important implications for economic stability, the importance of
control of credit becomes obvious. Credit is controlled by the Reserve Bank in
accordance with the economic priorities of the government.

Q11) Critically compare the pre and post New Industrial Policy 1991 in India.

A) The New Industrial Policy of 1991 comes at the center of economic reforms that
launched during the early 1990s. All the later reform measures were derived out of the
new industrial policy. The Policy has brought comprehensive changes in economic
regulation in the country. As the name suggests, these reform measures were made in
different areas related to the industrial sector.

As part of the policy, the role of public sector has been redefined. A dedicated reform
policy for the public sector including the disinvestment programme were launched
under the NIP 1991. Private sector has given welcome in major industries that were
previously reserved for the public sector.

Similarly, foreign investment has given welcome under the policy. But the most
important reform measure of the new industrial policy was that it ended the practice of
industrial licensing in India. Industrial licensing represented red tapism.

Because of the large scale changes, the Industrial Policy of 1991 or the new industrial
policy represents a major change from the early policy of 1956.

The new policy contained policy directions for reforms and thus for LPG (Liberalisation,
Privatisation and Globalisation). It enlarged the scope of private sector participation to
almost all industrial sectors except three (modified). Simultaneously, the policy has
given welcome to foreign investment and foreign technology. Since 1991, the country’s
policy on foreign investment is gradually evolving through the introduction of
liberalization measures in a phasewise manner.

Perhaps, the most welcome change under the new industrial policy was the abolition of
the practice of industrial licensing. The1991 policy has limited industrial licensing to
less than fifteen sectors. It means that to start an industry, one has to go for license and
waiting only in the case of these few selected industries. This has ended the era of
license raj or red tapism in the country. The 1991 industrial policy contained the root of
the liberalization, privatization and globalization drive made in the country in the later
period. The policy has brought changes in the following aspects of industrial regulation:

1. Industrial delicensing

2. Deregulation of the industrial sector

3. Public sector policy (dereservation and reform of PSEs)

4. Abolition of MRTP Act

5. Foreign investment policy and foreign technology policy.

1. Industrial delicensing policy or the end of red tapism: the most important part of the
new industrial policy of 1991 was the end of the industrial licensing or the license raj or
red tapism. Under the industrial licensing policies, private sector firms have to secure
licenses to start an industry. This has created long delays in the start up of industries.
The industrial policy of 1991 has almost abandoned the industrial licensing system. It
has reduced industrial licensing to fifteen sectors. Now only 13 sector need license for
starting an industrial operation.
2. Dereservation of the industrial sector– Previously, the public sector has given
reservation especially in the capital goods and key industries. Under industrial
deregulation, most of the industrial sectors was opened to the private sector as well.
Previously, most of the industrial sectors were reserved to the public sector. Under the
new industrial policy, only three sectors- atomic energy, mining and railways will
continue as reserved for public sector. All other sectors have been opened for private
sector participation.

3. Reforms related to the Public sector enterprises: reforms in the public sector were
aimed at enhancing efficiency and competitiveness of the sector. The government
identified strategic and priority areas for the public sector to concentrate. Similarly, loss
making PSUs were sold to the private sector. The government has adopted
disinvestment policy for the restructuring of the public sector in the country. at the
same time autonomy has been given to PSU boards for efficient functioning.

4. Foreign investment policy: another major feature of the economic reform measure
was it has given welcome to foreign investment and foreign technology. This measure
has enhanced the industrial competition and improved business environment in the
country. Foreign investment including FDI and FPI were allowed. Similarly, loan capital
has also introduced in the country to attract foreign capital.

5. Abolition of MRTP Act: The New Industrial Policy of 1991 has abolished the Monopoly
and Restricted Trade Practice Act. In 2010, the Competition Commission has emerged
as the watchdog in monitoring competitive practices in the economy.

The industrial policy of 1991 is the big reform introduced in Indian economy since
independence. The policy caused big changes including emergence of a strong and
competitive private sector and a sizable number of foreign companies in India.

Q12) Critically compare the pre and post 2020 Agricultural Reforms in India

A) India’s agriculture policies have had multiple mandates, including a production

imperative (national food security), a consumer imperative (keeping food prices low for
a large low-income population), and a farmer welfare imperative (raising farmer’s
income).

Tensions between these mandates have resulted in costly, contradictory policies whose
costs have been increasingly borne by farmers, the government purse, and the natural
environment.

Realising the significance of Agriculture in India’s socio-economic order, the

government has set an agenda of doubling farmer incomes by raising productivity and
cutting down costs, and going for diversification towards high value agriculture.

Associated Challenges In India’s Agriculture

Issue Related to Subsidies

 Agricultural subsidies were introduced to incentivise farmers to take up the
green revolution. Subsidies also intended to reduce the cost of production for
farmers and to check food price inflation and protect consumers.
 However, today it has become apparent that subsidies are inflicting significant
damage on different aspects of the economy.

o Subsidised Urea has led to massive overuse of nitrogenous fertilisers,

leading to damaged soils and pollution of local water bodies.
o Similarly, power subsidies have not only led to an alarming overuse of
groundwater,, but also it has severely damaged the health of power
distribution companies.
o Credit subsidies like loan waivers have weakened the Indian banking
system (due to increased NPAs), having negative spillover effects on the
economy.
o Output price supports in the form of minimum support price
(MSP) basically apply to only a handful of crops, especially wheat and rice
that are procured by the government in a handful of states.
Consumer Oriented Policies

 Whenever there is a price rise in any agricultural commodity, the government

imposes restrictions on exports to protect Indian consumers. It creates
hindrances for farmers taking advantage of high prices in foreign markets.
 This, coupled with the Essential Commodities Act (ECA), has meant lower
private investment in export infrastructure such as warehouses and cold storage
systems.
 This lack of storage infrastructure compels farmers to go for Distress sale.
Flawed Agricultural Marketing Policies

 Due to restrictions imposed by Agricultural Produce Market Committee

Acts passed by various states, Indian farmers today can only sell their produce
at Farmgate or local market (haat) to village aggregators, APMC mandis and to
government at the minimum support price (MSP).
 The introduction of the electronic national agriculture market (e-NAM)—an online
trading platform for agricultural commodities in India—is a step in the right
direction. However, its effects have been underwhelming due to three major
bottlenecks:

o Time cost of transactions

o Quality assessment challenges
o Transportation logistics
Marginal Land Holdings
 Raising farm productivity is critical for long-term increase in farmer incomes in
India, as land fragmentation means that many Indian farmers are farming plots of
such small sizes that even doubling their incomes would leave them with meagre
earnings.

o In India, nearly 85% of agricultural land holdings are small and

marginal (less than 2 hectare).
Slow Agricultural Growth Rate

 The Ashok Dalwai Committee Report on doubling farmers’ income, estimated

that the doubling farmers' income will require an agricultural growth rate of 10-
11% per annum, until 2022–23.
 However, agricultural growth rate and farmers' income growth rate has been
stagnating and well below the required rate of growth.
Steps to Increase Farmers' Income

Addressing Subsidies Problem

 This can be done by:

o Freeing up input prices to market levels, or charging an optimum cost

pricing for fertilisers, power, agri-credit, and canal waters fees.
o Channelizing the resulting savings for expenditures on investments in
agricultural R&D, irrigation, marketing infrastructure, building value chains
by involving Farmer Producer Organisations (FPOs) and linking farms to
organised retail, food processing, and export markets.
o Direct income transfers to farmers’ should be promoted by leveraging the
trinity of Jan Dhan–Aadhaar–Mobile (JAM) to reduce the leakages and
pilferage.
Allowing Land Leasing

 The central government, in association with the state governments, should free
up land lease markets, which can help provide farmers with a steady income,
while maintaining asset security.

o In remote dry areas, leasing land to solar or wind power companies could
provide farmers with relatively higher and steadier incomes.
o The Model Land Lease Act, 2016 offers an appropriate template for the
states and UTs to draft their own piece of legislations, in consonance with the
local requirements and adopt an enabling Act.
Increasing Avenues for Non-Farm Income
 Subsidised electricity should be rationalised, as today solar water pumps are
operationally and financially sustainable.
 This will reduce government burden of electricity subsidies, while at the same time
allowing surplus power from the solar powered pumps to be sold back to the
grid.
 Promoting value-added uses of biomass like Bamboo for construction and other
applications, rice husk and bagasse-based mini-power plants, and ethanol from
sugar cane and corn can all help augment farmer incomes in sustainable ways
while developing more dynamic local rural economies.
Improving Agricultural Export Scenario

 India needs to address the composition of its agriculture export

basket. Currently agricultural exports constitute 10% of the country’s exports, but
the majority of its exports are low value, raw or semi-processed, and marketed in
bulk.
 The share of India’s high value and value-added agriculture produce is less than
15%.
 Robust agriculture exports will increase the demand for India’s farm output (and
hence, incomes of farmers).
 In this context, the government has launched Agriculture Export Policy 2018. It
is aimed at doubling the agricultural exports and integrating Indian farmers and
agricultural products with the global value chains.
Investing in Agriculture Infrastructure

 The most sustainable way to augment farmers’ real incomes over the long term
is through investments in productivity-enhancing areas, ranging from
agricultural research and development (R&D), to irrigation to the
development of rural and marketing infrastructure.
 Local level investments that seek to build village level storage facilities, better
surface irrigation management, and investments in drip irrigation, tile drainage,
trap crops, etc, that can give results in a relatively short period of time.
Agricultural Marketing Reforms

 Farmers’ income can improve substantially if they are able to capture a greater
share in the supply chain from farm gate to consumer.
 For this to happen, farmers must have the freedom to sell what they want, where
they want, and when they want without any restrictions on sale, stocking,
movement, and export of farm produce.
 These will require legal and institutional changes, major investments in market
infrastructure and storage (including cold-chain storage), and incentives for the
creation and operation of infrastructure by FPOs.
 In this context, the state needs to adopt Model Agriculture Produce and
Livestock Marketing Act, 2017.
Q13) Discuss the major advantages and features of GST.

A) 1) Easy Compliance:

A robust and comprehensive IT system would be the foundation of GST Regime in India.
All tax-payer services such as registrations, returns, payment etc. would be available
online. It would make compliance easy and transparent.

2) Uniformity Tax Rates & Structures/Development of Common National Market:

GST will ensure that indirect tax rates and structures are common across the country. It
would increase the certainty and ease of doing business. In other words, GST would
make doing business in the country tax neutral, irrespective of choice of place of doing
business.

3) Removal of cascading effect:

A seamless flow of tax-credit through-out the value chain and across boundaries of
states, would ensure that there is minimal cascading of taxes. This would reduce the
hidden cost of doing business.

4) Competitiveness:

Reduction in transaction cost of doing business would eventually lead to an improved

competitiveness for the trade & industry.

5) Boost to exports:

Subsuming of major Central/State taxes in GST, complete and comprehensive set-off of

tax paid on goods & services, phasing out of Central Sales Tax (CST) would reduce the
locally manufactured goods & services. This will increase the competitiveness of Indian
Goods & Services in the International Market and give boost to Indian Exports.

For Central & State Governments:

1) Simple & Easy to administer:

Multiple indirect taxes at Central/State Level are replaced by GST. Backed with robust,
end to end IT system, GST would be simpler and easier to administer.

2) Better Control on leakages:

GST will result in better tax compliance due to a robust IT infrastructure. Owing to
seamless transfer of input tax credit from one stage to another in the chain of value
addition, there is an inbuilt mechanism in the design of GST that would incentivize tax
compliance by traders.
3) Higher Revenue Efficiency:

GST is expected to decrease the cost of collection of tax revenues of the Government and
will, therefore, lead to higher revenue efficiency.

For the consumers:

1) Single & Transparent Tax proportionate to the value of goods & services:

Owing to multiple taxes levied by Central/State with incomplete or no ITC available at

progressive stages of value addition, the cost of most goods & services in the country
was laden with many hidden taxes. Under GST, there would be only one tax from the
manufacturer to consumer leading to transparency of taxes paid.

2) Relief in overall tax burden:

Because of efficiency gains and prevention of leakage, the overall tax burden on most
commodities will come down, which will benefit the consumers.

Q14) What is the difference between the Balance of Trade and Balance of
Payments?

A) Balance of trade
The balance of trade is the distinction between the value of a nation’s imports and
exports for a given time frame. The BoT is the largest constituent of a nation’s balance of
payments. Economists utilise the BoT to compute the associative potency of a nation’s
economy. The BoT is also known as the trade balance or the international trade balance.

Balance of payment
The balance of payment is a statement of all the transactions that are made between
entities in one nation and the rest of the world over a particular time frame, such as a
quarter or a year. To put it in other words, the BoP is a set of accounts that identifies all
the commercial transactions operated by the nation in a specific period with the
remaining nations of the world. It documents a record of all the monetary transactions
performed globally by the nation on goods, services, and income during the year.
This article is a ready reckoner guide for the students to learn the difference between
the balance of trade and balance of payments.

Balance of trade Balance of payments

Definition

Balance of trade or BoT is a financial statement Balance of payment or BoP is a financial

that captures the nation’s import and export of statement that keeps track of all the economic
commodities with the rest of the world. transactions by the nation with the rest of the
world.

What does it deal with?

It deals with the net profit or loss that a country It deals with the proper accounting of the
incurs from the import and export of goods. transactions conducted by the nation.

Fundamental Difference

Balance of trade (BoT) is the difference that is Balance of payments (BoP) is the difference
obtained from the export and import of goods. between the inflow and outflow of foreign
exchange.

Type of transactions included

Transactions related to goods are included in Transactions related to transfers, goods, and
BoT. services are included in BoP.

Are capital transfers included?

No Yes

What is its net effect?

The net effect of BoT can be either positive, The net effect of BoP is always zero.
negative, or zero.

Q15) Explain some of the methods of estimating inflation.

A) Through PINs:
Inflation is measured by calculating the changes occurred in PINs over a passage of
time. The rate of inflation can be calculated by taking the percentage rate of change in
the price index for a given period of time.

The formula used for calculating inflation through PINs is as follows:

Rate of Inflation = PINt-PINt-1/PINt-1 * 100
Where, PINt = Price Index Number for year t
PINt-1 = Price Index Number for the preceding year (t-1)
The most commonly used price indices for calculating inflation through PINs are
as follows:
(a) Consumer Price Index (CPI):
Refers to the price index that measures the change occurred in the prices of consumer
goods and services purchased by households over a period of time. The Bureau of Labor
Statistics, U.S., has defined CPI as “a measure of the average change over time in the
prices paid by urban consumers for a market basket of consumer goods and services.”

(b) Wholesale Price Index (WPI):

Refers to the price index that is used to estimate the average change in price of goods in
wholesale market. W PI is also known as Producers Price Index (PPI). It is different from
CPI as the amount paid by consumers does not come directly to producers. This is
because of the reason that the revenue generated from the sales of goods and services is
subject to price subsidization, profits, and taxes.

(c) Let us understand the computation of inflation rate with the help of PIN. Suppose
CPI of a country in February 2007 was 202.416, while in February 2008 was 211.080.

Therefore, the rate of inflation in the country over a period of one year is as
follows:
Rate of Inflation = PINt-PINt-1/PINt-1 * 100
Where, PINt = 211.080
PINt = 202.416
Rate of Inflation = 211.080- 202.416 /202.416 * 100

ADVERTISEMENTS:

Rate of Inflation = 4.28%

Through GNP Deflator:

Apart from PIN, GNP deflator is also used for the measuring the rate of inflation. GNP
deflator is the measure of price levels of all the final goods and services produced in an
economy in a specific period of time.

The formula used for the calculation of GNP deflator is as follows:

GNP Deflator = (Nominal GNP ÷ Real GNP) * 100

Where Nominal GNP = GNP at current prices

Real GNP = GNP at constant prices

The percentage change in GNP deflator of two consecutive years provides the rate of
inflation.
Let us calculate the rate of inflation through GNP deflator with the help of an example.
Suppose nominal GNP of a country in 2006-2007 is Rs. 1840 thousand crores and real
GNP is Rs. 1236 thousand crores. In addition, in 2005-2006, the nominal GNP is Rs.
1560 thousand crores and real GNP is Rs. 1100 thousand crores.

Now, the rate of inflation is calculated as follows:

GNP Deflator (2006-2007) = (1840/1236)* 100 = 149

Now, GNP Deflator (2005-2006) = (1560/1100) * 100 =142

Therefore, the rate of inflation in the country between 2005-2006 and 2006-2007
would be as follows:
Rate of Inflation = [(149-142)/142] *100

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= (7/142)* 100

= 4.9%

Q16) Which are the most important functions of IMF according to you? Explain

A) Some of the main functions of International Monetary Fund are as follows:

1. Exchange Stability:

The first important function of IMF is to maintain exchange stability and thereby to
discourage any fluctuations in the rate of exchange. The Found ensures such stability by
making necessary arrangements like—enforcing declaration of par value of currency of
all members in terms of gold or US dollar, enforcing devaluation criteria, up to 10 per
cent or more by more information or by taking permission from IMF respectively,
forbidding members to go in for multiple exchange rates and also to buy or sell gold at
prices other than declared par value.

2. Eliminating BOP Disequilibrium:

The Fund is helping the member countries in eliminating or minimizing the short-
period equilibrium of balance of payments either by selling or lending foreign
currencies to the members. The Fund also helps its members towards removing the
long period disequilibrium in their balance of payments. In case of fundamental changes
in the economies of its members, the Fund can advise its members to change the par
values of its currencies.
3. Determination of Par Value:

IMF enforces the system of determination of par values of the currencies of the
members countries. As per the Original Articles of Agreement of the IMF every member
country must declare the par value of its currency in terms of gold or US dollars. Under
the revised Articles, the members are given autonomy to float or change exchange rates
as per demand supply conditions in the exchange market and also at par with internal
price levels.

As per this article, IMF is exercising surveillance to ensure proper working and balance
in the international monetary system, i.e., by avoiding manipulation in the exchange
rates and by adopting intervention policy to counter short-term movements in the
exchange value of the currency.

4. Stabilize Economies:

The IMF has an important function to advise the member countries on various economic
and monetary matters and thereby to help stabilize their economies.

5. Credit Facilities:

IMF is maintaining various borrowing and credit facilities so as to help the member
countries in correcting disequilibrium in their balance of payments. These credit
facilities include-basic credit facility, extended fund facility for a period of 3 years,
compensatory financing facility, lociffer stock facility for helping the primary producing
countries, supplementary financing facility, special oil facility, trust fund, structural
adjustment facility etc. The Fund also charges interest from the borrowing countries on
their credit.

6. Maintaining Balance Between Demand and Supply of Currencies:

IMF is also entrusted with important function to maintain balance between demand and
supply of various currencies. Accordingly the fund can declare a currency as scarce
currency which is in great demand and can increase its supply by borrowing it from the
country concerned or by purchasing the same currency in exchange of gold.

7. Maintenance of Liquidity:

To maintain liquidity of its resources is another important function of IMF. Accordingly,

there is provision for the member countries to borrow from IMF by surrendering their
own currencies in exchange. Again for according accumulation of less demand
currencies with the Fund, the borrowing countries are directed to repurchase their own
currencies by repaying its loans in convertible currencies.

8. Technical Assistance:

The IMF is also performing an useful function to provide technical assistance to the
member countries. Such technical assistance in given in two ways, i.e., firstly by granting
the members countries the services of its specialists and experts and secondly by
sending the outside experts.

Moreover the Fund has also set up two specialized new departments:

(a) Central Banking Services Department and

(b) Fiscal Affairs Department for sending specialists to member countries so as to

manage its central banks and also on fiscal management.

9. Reducing Tariffs:

The Fund also aims at reducing tariffs and other restrictions imposed on international
trade by the member countries so as to cease restrictions of remittance of funds or to
avoid discriminating practices.

10. General Watch:

The IMF is also keeping a general watch on the monetary and fiscal policies followed by
the member countries to ensure no flouting of the provisions of the charter.

Q17) What is Foreign Aid? State the types of Foreign Aid.

A) Foreign aid is the voluntary movement of money or other resources from one nation
to another. The transactions are mostly from developed countries to developing
countries. A developing nation typically lacks a strong manufacturing base and is
distinguished by a low value of the Human Development Index (HDI). Foreign aid may
be offered as a contribution or a loan, which can either be a hard or soft loan. If the loan
is in a foreign currency, it is termed as a hard loan.

Types of Foreign Aid

1. Tied Aid

Tied aid is a type of foreign aid that must be invested in a country that is providing
support or in a group of chosen countries. A developed country can offer a bilateral loan
or grant to a developing nation but will be required by the government to invest the
money on goods and services produced in that country.

2. Bilateral Aid

Bilateral aid is given directly by one country’s government to that of another country’s
government. It occurs when money flows from a country with a developed economy to a
country with a developing economy. Bilateral aid is directed by strategic, political, and
humanitarian interests. This is meant to further foster democracy, economic growth,
peace, and sustainability of long-term programs.
3. Multilateral Aid

Multilateral aid is the support offered by several countries that share funds to foreign
organizations such as the United Nations, the World Bank, and the International
Monetary Fund (IMF). The funds are used to relieve hunger in developing nations. While
the sector represents a minority of financial aid of the U.S., the donations provided by
the country make up a large proportion of the donor funds obtained by the
organizations.

4. Military Aid

Military aid typically allows the recipient country either to procure weapons or security
contracts directly from the U.S. In other situations, it actually simplifies the mechanism
by enabling the federal government to buy weapons on its own and ship them to
military transport.

5. Project Aid

The assistance is known to be project aid when the funds are used to support a certain
project, such as a hospital or school.

Q18) What are American Depository Receipts (ADRs) and Global Depository
Receipts (GDRs)? Explain.

A) What is ADR?
ADR stands for American Depository Receipts, which are a kind of negotiable security
instrument that is issued by a US Bank representing a specific number of shares in a
foreign company that trades in US financial markets.
ADRs make it easy for US investors to purchase stock in foreign companies.

What is GDR?
GDR stands for Global Depositary receipts. It is a type of bank certificate that acts as
shares in foreign companies. It is a mechanism by which a company can raise equity
from the international market.
GDR is issued by a depository bank located overseas or in other words, GDR is issued by
a depository bank which is located outside the domestic boundaries of the company to
the residents of that country.
GDR is mostly traded in the European Market. Issuing GDR is one of the best ways to
raise equity from overseas.

Example of GDR
A company located in India, looking to get stock listed on the French Stock Exchange,
will get into an agreement with a depository bank of France, which in turn will issue
shares to the residents of France after getting permission from the company’s domestic
custodian.
Following are some of the points of difference between ADR and GDR

ADR GDR

Stands For

American Depository Receipts Global Depository Receipts

Definition

American Depository Receipts (ADR) is a type Global Depository Receipts (GDR) are a type of
of negotiable security instrument that is issued negotiable instruments that are issued by a
by a US bank on behalf of a non-US company, foreign depository bank for trading of shares of
which is trading on the US stock exchange. a company in an international market

Currency traded in

US Dollars US Dollars, Euro

Purpose

To acquire resources in the US Market To acquire resources in the International

Market

Listed in

NASDAQ Listed in Non-US stock exchanges such as LSE

(London Stock Exchange) and Euronext
(France)

Issued By

US Capital Market European Capital Market

Q19) Share your views on the MRTP Act? Enlist the various amendments being
made in the said act.

A) The Monopolistic and Restrictive Trade Practices Act, 1969, was enacted
To ensure that the operation of the economic system does not result in the
concentration of economic power in hands of few,

To provide for the control of monopolies, and

To prohibit monopolistic and restrictive trade practices.

The MRTP Act extends to the whole of India except Jammu and Kashmir.

Unless the Central Government otherwise directs, this act shall not apply to:

Any undertaking owned or controlled by the Government Company,

Any undertaking owned or controlled by the Government,

Any undertaking owned or controlled by a corporation (not being a company

established by or under any Central, Provincial or State Act,

Any trade union or other association of workmen or employees formed for their own
reasonable protection as such workmen or employees,

Any undertaking engaged in an industry, the management of which has been taken over
by any person or body of persons under powers by the Central Government,

Any undertaking owned by a co-operative society formed and registered under any
Central, Provincial or state Act,

Scope & features of MRTP, Act, 1969

he salient features of the MRTP Act of 1969 are as follows:

Aim of the Act:

MRTP Act came into existence on 1 June, 1970. The law was enacted with the sole aim of
achieving the largest possible production with least damage to people at large whilst
securing maximum benefit.

Scope of the MRTP Act, 1969

To first understand the salient features that govern the MRTP Act, 1969, it is important
in order to truly understand the scope of its applicability. Following are the concepts
tackled by the Act

It followed a Command and Control Approach The Act made it compulsory for
enterprises having assets more than INR 20 crores to take approval from the Central
Government before underdoing any kind of corporate restructuring or a proposed
takeover. A criterion was fixed to identify the dominant undertaking. Enterprises with
assets of more than INR 1 crore were automatically deemed to be dominant.
Trade Practices which are monopolistic in nature “ Monopolistic Trade Practices are
covered under Chapter IV of the MRTP Act, 1969. These are the activities which are
undertaken by Big Corporate Houses by exploiting their position in the market. This
meant that activities which hamper or eliminate competition of healthy nature in the
economic market were prohibited as these trade practices were anti-consumer.

Restrictive Trade Practices“ Restrictive Trade Practices are activities that stop the flow
of capital or profits back into the market. Some businesses often tend to control the
supply of goods or products in the market by either restricting production or taking
control of the delivery. The Act disallows and ensures firms do not indulging in these
practices. .

Unfair Trade Practices Unfair Trade Practices are acts of false & misleading nature
related to goods and services by the firms. Section 36-A of the MRTP Act, 1969 explicitly
prohibits firms from indulging in Unfair Trade Practices (UTPs). The provision against
Unfair Trade Practices was inserted by the 1984 Amendment to the MRTP Act.

MRTP Act also allows for the establishment of the Commission of MRTP which is to be a
regulatory authority to deal with the offences under the MRTP Act. During its
enactment, the MRTP Act being the first legislation which addressed competition law
problems in India seemed to be a perfect legislation to catch the defaulting companies.
However, with the wave of globalization that came post the 1991 reforms the whole
scenario in the country changed. A need for modification in the existing MRTP Act in
order to keep pace with the rapidly changing economic scenario arose.

Q20) What do understand by the term business ethics? Discuss the importance of
business ethics to business citing examples
A) Business ethics is the study of how a business should act in the face of ethical
dilemmas and controversial situations. This can include a number of different
situations, including how a business is governed, how stocks are traded, a business' role
in social issues, and more.

Business ethics is a broad field because there are so many different topics that fall under
its umbrella. It can be studied from a variety of different angles, whether it's
philosophically, scientifically, or legally. However, the law plays the biggest role in
influencing business ethics by far.

Many businesses leverage business ethics not only to remain clean from a legal
perspective, but also to boost their public image. It instills and ensures trust between
consumers and the businesses that serve them.

The modern idea of business ethics as a field is relatively new, but how to ethically
conduct business has been widely debated since bartering and trading first arose.
Aristotle even proposed a few of his own ideas about business ethics.

However, business ethics as we know it today arose in the 1970s as a field of academic
study. As part of academia, business ethics were both debated philosophically and
measured empirically. As this field of study became more robust, the government began
legislating leading ideas in the field into law, thus forcing businesses to abide by certain
rules and regulations that were deemed ethical.

Why Is Business Ethics Important?

Business ethics are important for a variety of reasons. First and foremost, it keeps the
business working within the boundaries of the law, ensuring that they aren't
committing crimes against their employees, customers, consumers at large, or other
parties. However, the business also has a number of other advantages that will help
them succeed if they are aware of business ethics.

Businesses can also build trust between the business and consumers. If consumers feel
that a business can be trusted, they will be more likely to choose that business over its
competitors. Some businesses choose to use certain aspects of business ethics as a
marketing tool, particularly if they decide to highlight a popular social issue. Leveraging
business ethics wisely can result in increased brand equity overall.

Being an ethical business is also highly appealing to investors and shareholders. They
will be more likely to sink money into the company, as following standard ethical
business practices and leveraging them properly can be a path to success for many
businesses.

Following business ethics can also be beneficial for the business' employees and
operations. Attracting top talent is significantly easier for ethical businesses. Employees
not only appreciate a socially aware employer, but will also perceive them as the kind of
business that will act in the best interest of their employees. This produces more
dedicated employees and can also reduce recruitment costs.

Q21) Define International Trade?State two advantages and disadvantages each of

international trade?
A)Meaning is International Trade
The buying and selling of goods and services between different countries is called
international trade. The imports are purchases and exports are sales to foreign
countries. Every country is not self-sufficient in meeting the requirements of general
public. The need for international trade arises due to uneven distribution of natural
resources, climatic conditions, growth rate, technology and professional management.
The ambition of every nation is that there should be favorable balance of payments. It
means more experts and less imports. The advanced and developed countries can have
favorable position. But under developed countries are at the worse position of balance
of payments and their debts level is increasing.

Advantages of International Trade

1. Better use of Resources. The producer try to control the cost by optimum
combination of factors of production. So there is no misuse of production factors.
2. Economies of Larges Scale. The economies of production, transport,
management, finance and advertisement are available to the producers.
3. Cultural Diversity. The import and export of goods and services introduces the
taste and preference of one group of people to the rest of the world.
 4. Monopoly. It eliminates monopoly, sometimes goods and services can be
important and surplus can be exported. In both cases the seller cannot create
monopoly in the market.
5. Employment Opportunities. When countries increase their export, the must
manufacture goods, which will required more human power.
6. Economic Development. Due to exports both the production and per capital
income increases which result in economic prosperity.
7. International Relations. It brings friendly relations with other countries, which
can lead to employment opportunities as well as educational scholarship and
many more.
8. Transfer to Technology. With the development trade relations they can transfer
improve method, machinery for inventions and innovation.
9. Price Stability. It is beneficial to keep prices stable as a result of supply of goods
in time. The surplus goods are exported and if faces shortage the goods can be
imported to maintain the price level.
10. World Peace. When countries involve in international trading, they want to keep
friendly relations with each other in order to increase the exports and engage the
manpower in the rest of the world which is a source of friend remittances.
Disadvantages of International Trade
1. Local Industry Suffers. When countries import goods or services from other
counties. They are ready to use and cheap prices and local industry cannot
compete the quality or price, living example is Chinese products.
2. Excessive Use Natural Resources. After involving in international trade market,
countries want to export in bulk quantity. They must produce goods in bulk which
involve utilization of natural resources.
3. Shortage in the Local Market. For capturing market share, countries involve to
export too much as a result they face shortage in the local market and notice hike
in prices.
4. Unemployment. When the capitalists find that importing goods can give them
more profit then producing it in the local market, they prefer to import which lead
to unemployment in the local market.
5. Colonialism. Sometimes independent countries become colonies of other nations.
Good example is large corporations and mega-projects. Time comes when their
whole economy is controlled by corporate tycoons. They become so powerful that
destabilize the countries economically and politically.
6. Economic and Military War. Every country wants to lead in export and
economic sound position, which leads to become economic rivals. They want to
destabilize other rivals by terrorism, wars etc. Exporting military weapons, atomic
weapons (aircrafts, missals, tanks, automatic and semi atomic guns etc) is another
example of international trade.

Q22) State the differences between Foreign Direct Investment (FDI) and Foreign
Portfolio Investment (FPI)

A) A country needs funds to grow its economy. While approaching domestic sources is
one way, approaching international sources is another way. There are two ways a
country can get capital through international sources. Namely, Foreign Direct
Investment (FDI) and Foreign Portfolio Investment (FPI). Though they sound similar,
 they are poles apart. This article covers Foreign Direct Investment (FDI), Foreign
Portfolio Investment (FPI), along with FDI vs FPI in detail.
What is Foreign Direct Investment (FDI)?
Foreign Direct Investment (FDI) is when a company invests a substantial amount in a
foreign company by taking controlling ownership and participating in the company’s
day-to-day business. In FDI, along with the capital, the company brings in knowledge,
skill, and also technical know-how. Hence, they hold a good amount of control in terms
of decision making.

 FDIs are commonly made in countries that have a high potential for growth and also in
countries that have a skilled workforce.
 FDI can happen even when a company acquires assets or establishes a business in a
foreign country. It is also a very common practice to expand business to new countries.
Moreover, a company can either merge or enter into a joint venture with a foreign
company.
 An FDI can lead to horizontal expansion, vertical expansion or also a conglomerate. In
horizontal investment, the company invests in companies with similar businesses or
establishes a similar business. While in vertical investment, the company invests in
companies that are complementary to its business. And in a conglomerate investment,
the company invests in a business that is totally unrelated to its core business.
 The Indian economy opened up in 1991 for the entire world and since then, it has been
attracting foreign investment.

What is Foreign Portfolio Investment (FPI)?

Foreign Portfolio Investment (FPI) refers to passive investments in the financial assets
of a foreign economy. Financial assets such as stocks, bonds, and other financial assets.
Also, none of these involves any active management by the investor.

 The primary motive of FPI is to invest money in foreign markets with the hope to
generate quick returns. Therefore, it involves the purchase of securities that can be
easily bought and sold.
 FPIs are made to generate short term financial gains but not to gain control over the
managerial operations of the business.
 Often, FPI’s are viewed as less favourable than direct investments since it is easy to
liquidate the portfolio investments. At times, FPIs are made with an intention to earn
short term gains rather than a long-term investment in the foreign country (economy).
 India witnessed the highest FPI withdrawals in October 2018 and July 2020. This can be
an indication that foreign investors are eyeing other developing nations for higher
returns.

Difference between FDI and FPI

Following are the key differences between FDI Vs FPI:
Basis of FDI FPI
Difference
Definition Foreign Direct Investment (FDI) refers to Foreign Portfolio Investment (FPI) is an
either direct investments made in a investment in a foreign country’s
foreign country to expand a firm, build financial assets, either stocks or bonds.
new infrastructure, or make long-term It is mainly done to generate significant
investments in that country’s economy. returns from the stock markets.
Type of Active Passive
Investors
Type of Direct Investment Indirect Investment
Investment
Degree of High control Very low control
Control
Investment Long Term Short Term
Term
Involvement Long term interest in the company, Looking for short term gains, therefore
therefore, involved in management and no active involvement in the managerial
ownership control. activities.
Project Projects are managed efficiently. Less efficiency in project management.
Management
Type of Physical assets and stakes in the foreign Financial assets of the foreign country
Assets companies. (Financial and also Non- like stocks, bonds and also ETFs.
Financial Assets).
Entry and Difficult Relatively easy
Exit
Motive Business expansion. Generating returns to the investor.
Leads to Transfer of technology, funds and also Capital inflow to the foreign countries.
resources to the foreign country.
Volatility Stable Volatile

Q23) Discuss the rationale behind economic reforms introduced in India in

1991.
A) Major Steps in the 1991 Reforms
The major policy initiatives taken by the Government to fundamentally address the
balance of payments problem and the structural rigidities were as follows:

 Fiscal Reforms: A key element in the stabilization effort was to restore fiscal
discipline. The data reveals that fiscal deficit during 1990-91 was as large as 8.4
percent of GDP. The budget for 1991-92 took a bold step in the direction of
correcting fiscal imbalance. It envisaged a reduction in fiscal deficit by nearly two
percentage points of GDP from 8.4 percent in 1990-91 to 6.5 percent in 1991-92.

The budget aimed at containing government expenditure and augmenting

revenues; reversing the downtrend in the share of direct taxes to total tax
revenues and curbing conspicuous consumption. Some of the important policy
initiatives introduced in the budget for the year 1991-92 for correcting the fiscal
imbalance were: reduction in fertilizer subsidy, abolition of subsidy on sugar,
disinvestment of a part of the government’s equity holdings in select public
sector undertakings, and acceptance of major recommendations of the Tax
Reforms Committee headed by Raja Chelliah. These recommendations aimed to
raise revenue through better compliance in case of income tax and excise and
customs duties, and make the tax structure stable and transparent.
 Monetary and Financial Sector Reforms: Monetary reforms aimed at doing
away with interest rate distortions and rationalizing the structure of lending
rates.

The new policy tried in many ways to make the banking system more efficient.
Some of the measures undertaken were:

o Reserve Requirements: reduction in statutory liquidity ratio (SLR) and

the cash reserve ratio (CRR) in line with the recommendations of the
Narasimham Committee Report, 1991. In mid-1991, SLR and CRR were
very high. It was proposed to cut down the SLR from 38.5 percent to 25
percent within a time span of three years. Similarly, it was proposed that
the CRR br brought down to 10 percent (from the earlier 25 percent) over
a period of four years
o Interest Rate Liberalisation: Earlier, RBI controlled the rates payable on
deposits of different maturities and also the rates which could be charged
for bank loans which varied according to the sector of use and also the
size of the loan. Interest rates on time deposits were decontrolled in a
sequence of steps beginning with longer term deposits, and liberalisation
was progressively extended to deposits of shorter maturity
o Greater competition among public sector, private sector and foreign
banks and elimination of administrative constraints
o Liberalisation of bank branch licensing policy in order to rationalize the
existing branch network
o Banks were given freedom to relocate branches and open specialized
branches
o Guidelines for opening new private sector banks
o New accounting norms regarding classification of assets and provisions of
bad debt were introduced in tune with the Narasimham Committee
Report
 Reforms in Capital Markets: Recommendations of the Narasimham Committee
were initiated in order to reform capital markets, aimed at removing direct
government control and replacing it with a regulatory framework based on
transparency and disclosure supervised by an independent regulator. The
Securities & Exchange Board of India (SEBI) which was set up in 1988 was given
statutory recognition in 1992 on the basis of recommendations of the
Narasimham Committee. SEBI has been mandated to create an environment
which would facilitate mobilization of adequate resources through the securities
market and its efficient allocation.
 Industrial Policy Reforms: In order to consolidate the gains already achieved
during the 1980s, and to provide greater competitive stimulus to the domestic
industry, a series of reforms were introduced in the Industrial Policy. The
government announced a New Industrial Policy on 24 July 1991. The New
Industrial Policy established in 1991 sought substantially to deregulate industry
so as to promote growth of a more efficient and competitive industrial economy.
The central elements of industrial policy reforms were as follows:
o Industrial licensing was abolished for all projects except in 18 industries.
With this, 80 percent of the industry was taken out of the licensing
framework.
 o The Monopolies & Restrictive Trade Practices (MRTP) Act was repealed
to eliminate the need for prior approval by large companies for capacity
expansion or diversification.
o Areas reserved for the public sector were narrowed down and greater
participation by private sector was permitted in core and basic industries.
The new policy reduced the number of areas reserved from 17 to 8. These
eight are mainly those involving strategic and security concerns.
(Example, railways, atomic energy etc.)
o The policy encouraged disinvestment of government holdings of equity
share capital of public sector enterprises.
o The public sector units were provided greater autonomy and professional
management that could be helpful for generating reasonable profits,
through an MOU(Memorandum of Understanding) between the
enterprise and the concerned Ministry, through which targets that the
enterprise had to achieve were set up
 Trade Policy Reforms: Under trade policy reforms, the main focus was on
greater openness. Hence, the policy package was essentially an outward-oriented
one. New initiatives were taken in trade policy to create an environment which
would provide a stimulus to export while at the same time reducing the degree of
regulation and licensing control on foreign trade.

The main feature of the new trade policy as it has evolved over the years since
1991 are as follows:

o Freer imports and exports: Prior to 1991, in India imports were regulated
by means of a positive list of freely importable items. From 1992, imports
were regulated by a limited negative list. For instance, the trade policy of
1 April 1992, freed imports of almost all intermediate and capital goods.
Only 71 items remained restricted.
o Rationalization of tariff structure and removal of quantitative restrictions:
The Chelliah Committee’s Report had suggested drastic reduction in
import duties. It had suggested a peak rate of 50 percent. As a first step
towards a gradual reduction in the tariffs, the 1991-92 budget had
reduced the peak rate of import duty from more than 300 percent to 150
percent. The process of lowering the customs tariffs was carried further
in successive budgets.
o Trading Houses: The 1991 policy allowed export houses and trading
houses to import a wide range of items. The Government also permitted
the setting up of trading houses with 51 percent foreign equity for the
purpose of promoting exports. For instance, under the 1992-97 trade
policy, export houses and trading houses were provided the benefit of
self-certification under the advance license system, which permits duty
free imports for exports.
 Promoting Foreign Investment: The government took several measures to
promote foreign investment in India in the post-reform period. Some of the
important measures are:
o In 1991, the government announced a specified list of high technology
and high-investment priority industries wherein automatic permission
was granted for foreign direct investment (FDI) up to 51 percent foreign
 equity. The limit was raised to 74 percent and subsequently to 100
percent for many of these industries. Moreover, many new industries
have been added to the list over the years.
o Foreign Investment Promotion Board (FIPB) has been set up to negotiate
with international firms and approve direct foreign investment in select
areas.
o Steps were also taken from time to time to promote foreign institutional
investment (FII) in India.
 Rationalization of Exchange Rate Policy: One of the important measures
undertaken to improve the balance of payments situation was the devaluation of
rupee. In the very first week of July 1991, the rupee was devalued by around 20
percent. The purpose was to bridge the gap between the real and the nominal
exchange rates that had emerged on account of rising inflation and thereby to
make the exports competitive.

Q24) What are Trading Blocs? State an example of one such trading bloc.

A) What is a trading bloc?

There are a variety of ways in which countries can “protect” their domestic economies
from competition from abroad. One of them is through trading blocs.

A trading bloc is a type of intergovernmental agreement, often part of a regional

intergovernmental organisation, where regional barriers to international trade, (tariffs
and non-tariff barriers) are reduced or eliminated among the participating states,
allowing them to trade with each other as easily as possible.

The idea is that member countries freely trade with each other, but establish barriers to
trade with non-members, which has had a significant impact on the pattern of global
trade.

International trade agreements can open up new opportunities for exporters. They can
also ensure access to competitively priced imports from other countries.

While the formation of trade blocs, such as the European Union and NAFTA (North
American Free Trade Agreement), has led to trade creation between members, by the
same token it is also harder for countries outside the bloc to trade, leading to what is
called trade diversion, where a company that otherwise might have got the business in
that country is prevented from doing so because of a trading bloc and the barriers in
place for non-member countries.

Read Open to Export’s general introduction to how world works for further information.

What types of trading blocs are there?

Free Trade Area

Members agree to reduce or abolish trade barriers such as tariffs and quotas between
themselves. They maintain their own individual tariffs and quotas with respect to non-
members.

Customs Union

Countries that belong to customs unions agree to reduce or abolish trade barriers
between themselves and agree to establish common tariffs and quotas with respect to
outsiders.

Common Market

This is a customs union in which the members also agree to reduce restrictions on the
movement of factors of production – such as people and finance – as well as reducing
barriers on the sale of goods.

Economic Union

A common market which is taken further by agreeing to establish common economic

policies on such things as taxation and interest rates and, even, a common currency.

Q25) What are the important elements of socio-cultural environment? Explain.

A) The sociocultural environment refers to trends and developments in changes in

attitudes, behavior, and values in society. It is closely related to population, lifestyle,
culture, tastes, customs, and traditions. These factors are created by the community and
often are passed down from one generation to another.

Examples of critical sociocultural variables are:

Culture. Individual values and habits can change individuals through contact with
specific cultures.

Habits that represent how to behave in response to a given situation.

Beliefs and values. Belief refers to how we feel about something or someone.
Meanwhile, values are relatively long-standing beliefs and serve as guidelines for
culturally appropriate behavior.

Number and growth of population. Increasing the population indeed provides more
labor and demand for goods and services. On the other hand, it can lead to social
problems such as crime and poverty, especially when employment is inadequate.

Age composition. In some countries, productive age populations dominate and provide
opportunities for economic growth and demand for goods and services. However,
countries like Japan, the elderly population dominates. It presents opportunities as well
as challenges for the economy and companies there.
Geography. Populations may be concentrated in some geographical regions, for
example, on arable agricultural land or in industrial areas.

Ethnicity. A country, like Indonesia, consists of a variety of different ethnic and ethnic
groups. It has implications for various aspects such as language, culture, habits, and
tastes.

Household and family structure. The population of a community can be broken down
based on the number of children.

Employment, for example, the composition of white-collar workers vs. blue-collar

workers.

Wealth and social class. People from different social classes can have different values
that reflect their position in society.

How does the sociocultural environment affect business

Changes in several sociocultural factors may take years. However, some of them are
changing faster and more dynamically, for example, thanks to technological
developments.

Sociocultural factors continue to change. That has implications for the opportunities and
threats that companies face. And finally, these changes also determine the company’s
strategy that the company must choose.

Social and cultural change challenges companies to find more effective ways to adapt to
stay ahead of their competitors.

For example, changes in age composition affect changes in patterns of demand for goods
and services. As the elderly population begins to dominate, the need for health services
and pensions increases.

Furthermore, changes in age composition also affect recruitment policies. Companies

must face more elderly with reduced productivity.

Different sociocultural factors also influence business practices, policies, and activities.

Culture influences taste and lifestyle. Therefore, culture also influences the types of
products and services that businesses must offer.

Q26) What is Cloud computing? What is its contribution?

A) Cloud computing offers your business many benefits. It allows you to set up what is
essentially a virtual office to give you the flexibility of connecting to your business
anywhere, any time. With the growing number of web-enabled devices used in today's
business environment (e.g. smartphones, tablets), access to your data is even easier.
There are many benefits to moving your business to the cloud:

Reduced IT costs

Moving to cloud computing may reduce the cost of managing and maintaining your IT
systems. Rather than purchasing expensive systems and equipment for your business,
you can reduce your costs by using the resources of your cloud computing service
provider. You may be able to reduce your operating costs because:

 the cost of system upgrades, new hardware and software may be included in
your contract
 you no longer need to pay wages for expert staff
 your energy consumption costs may be reduced
 there are fewer time delays.

Scalability

Your business can scale up or scale down your operation and storage needs quickly to
suit your situation, allowing flexibility as your needs change. Rather than purchasing
and installing expensive upgrades yourself, your cloud computer service provider can
handle this for you. Using the cloud frees up your time so you can get on with running
your business.

Business continuity

Protecting your data and systems is an important part of business continuity planning.
Whether you experience a natural disaster, power failure or other crisis, having your
data stored in the cloud ensures it is backed up and protected in a secure and safe
location. Being able to access your data again quickly allows you to conduct business as
usual, minimising any downtime and loss of productivity.

Collaboration efficiency

Collaboration in a cloud environment gives your business the ability to communicate

and share more easily outside of the traditional methods. If you are working on a
project across different locations, you could use cloud computing to give employees,
contractors and third parties access to the same files. You could also choose a cloud
computing model that makes it easy for you to share your records with your advisers
(e.g. a quick and secure way to share accounting records with your accountant or
financial adviser).

Flexibility of work practices

Cloud computing allows employees to be more flexible in their work practices. For
example, you have the ability to access data from home, on holiday, or via the commute
to and from work (providing you have an internet connection). If you need access to
your data while you are off-site, you can connect to your virtual office, quickly and
easily.
Access to automatic updates

Access to automatic updates for your IT requirements may be included in your service
fee. Depending on your cloud computing service provider, your system will regularly be
updated with the latest technology. This could include up-to-date versions of software,
as well as upgrades to servers and computer processing power.