Name: Nivedita Kushwah

Enrollment Number: JNU-jpr/de/15/02/01/07274

JAIPUR NATIONAL UNIVERSITY, JAIPUR

School of Distance Education & Learning
Internal Assignment No. 1
Master of Business Administration / PGDM
Paper Code:
Paper Title:

MBA 101
Business Environment

Q1. Short Answer Type Questions:

Q. 1. Answer all the questions:
(i)

Name two elements of internal environment affecting business.

Ans: :-

Internal Environment :Internal environment refers to the factors

internal to the firm i.e., factors existing within a business firm. These factors are
generally controllable because the company has control over them and determine
the potential of a company to meet the environment challenges.
Two elements of internal environment affecting business are:1) Culture: - It is widely acknowledged fact that any business organisation is
normally undertaken for profit maximisation. Nonetheless, persons holding
top positions in certain modern corporate enterprises have some values which
influence their policies, norms, working language, systems, symbols practices
and overall internal environment. This may be refer as culture of the
organisation which is the collective behavior of humans that are part of an
organisation. The extent to which the culture of the organisation is shared by
all, leads to an important factor contributing to success.

Name: Nivedita Kushwah

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2) Top Management Structure: - The composition of the board of directors is

very critical factor for the development and performance of company as they
are highest decision-maker authorities, extend of professionalism of
management as it may be professionally managed or family controlled,
nominee of financial institutions having large holdings in companies, the
shareholding pattern could have important managerial implications. All these
factors are of great importance from the point of view of the companys
internal environment.
(ii)

What is multi national enterprise?

Ans: Multinational enterprises (MNE) are organizations that are owned or

control productions of goods or services in one or more countries other than the
home country.
For example, when a corporation is registered in more than one country or has
operations in more than one country, it may be attributed as MNC. Usually, an
MNC is a large corporation which produces or sells goods or services in various
countries. It can also be referred as an international corporation, or a
"transnational corporation", or perhaps best of all, as a stateless corporation.
(iii)

Give two suggestions to the problems of small scale industries.

Ans: (1) Equitable Allocation of Raw Materials, Imported Components

and Equipment:
The small scale industrial units should be given adequate degree of priority in the
allocation pattern of essential, but scarce, raw materials, imported components and
equipment.
(2) Improvement in the Methods and Techniques of Production:

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The small scale industrial units should be encouraged to replace their outmoded
equipment with that incorporating an up-to-date technology, and facilities and
incentives should be provided wherever required. Up-dating the methods and
techniques of production of quality goods conforming to standards. The role of the
Government in this respect is quite significant. Standardisation of certain products
should be ensured, the quality of products should be guaranteed, and malpractices
like adulteration, misrepresentation, etc., need to be curbed drastically.
(iv)

Define privatization.

Ans: Privatization, also spelled privatisation, may have several meanings.

Primarily, it is the process of transferring ownership of a business, enterprise,
agency, public service, or public property from the public sector (a government) to
the private sector, either to a business that operates for a profit or to a nonprofit
organization. It may also mean government outsourcing of services or functions to
private firms, e.g. revenue collection, law enforcement, and prison management.
Privatization has also been used to describe two unrelated transactions. The first is
the buying of all outstanding shares of a publicly traded company by a single entity,
making the company privately owned. This is often described as private equity. The
second is a demutualization of a mutual organization or cooperative to form a jointstock company.

(v)

What do you understand by fiscal policy?

Ans: Fiscal policy:- The word fiscal is derived from the old French Word Fisc,
which means the money basket or the treasury. Thus fiscal means pertaining to
treasury or government finance. Fiscal policy means the government policy of
taxation, expenditure and public debt etc. Fiscal policy may be defined as a policy

Name: Nivedita Kushwah

Enrollment Number: JNU-jpr/de/15/02/01/07274

under which the government uses its expenditure and revenue programmes to
produce desirable effect & avoid undesirable effect on national income, production
and unemployment. It emphasizes the effect of government expenditure and
revenue upon total economy and argues that they should be used deliberately and
consciously as a balancing factor to secure economic stabilization. Gerhard Colm
defines fiscal policy as the conduct of government expenditure, revenues and debt
management in such a way as to take fully into account the effect of these
operations in the allocation of resources and the flow of funds and thereby their
influence on the level of income prices employment and production.
Note: Answer any two questions. Each question carries 5 marks (Word limits
500)
Q. 2. What is technology? Explain the impact of technology on business.
Ans:
Q. 3. Explain Monetary policy & its effect on business.
Ans: Monetary Policy:Monetary policy is the term used by economists to
describe ways of managing the supply of money in an economy. Monetary policy is
the process by which the monetary authority of a country controls the supply of
money,

often

targeting

rate

of

interest for

the

purpose

of

promoting economic growth and stability. The official goals usually include
relatively stable prices and low unemployment. Monetary economics provides
insight into how to craft optimal monetary policy.
Monetary policy is referred to as either being expansionary or contractionary, where
an expansionary policy increases the total supply of money in the economy more
rapidly than usual, and contractionary policy expands the money supply more

Name: Nivedita Kushwah

Enrollment Number: JNU-jpr/de/15/02/01/07274

slowly than usual or even shrinks it. Expansionary policy is traditionally used to try
to combat unemployment in a recession by lowering interest rates in the hope that
easy credit will entice businesses into expanding. Contractionary policy is intended
to slow inflation in order to avoid the resulting distortions and deterioration of asset
values.
Effect on business:The effect of an expansionary monetary policy is to lower the exchange rate,
weaken the financial account and strengthen the current account. A restrictive
monetary policy would be expected to result in the opposite: a higher exchange rate,
a stronger financial account and a weaker current account (a more negative, or a
less

positive

balance

of

trade).

With a program of expansionary (easy) monetary policy, the following sequence of

events would be expected to occur with regard to the income effect:

The

domestic

GDP

will

rise.

The rise in domestic GDP will tend to increase the demand for imports.
The increase in imports will cause the current account to deteriorate.
The increase in imports purchased will increase the need to convert domestic to
foreign currency. As a result, the exchange rate of the domestic currency will
decrease.
With no government intervention, the financial account must now move toward a
surplus as the financial and current account must sum to zero. Due to the increase in
imports, foreigners will now have a surplus of the nation's currency. If foreigners do
not use that currency to purchase the country's exports (which would improve the

Name: Nivedita Kushwah

Enrollment Number: JNU-jpr/de/15/02/01/07274

current account balance), they will ultimately need to invest that currency in the
assets

of

the

domestic

country.

This

explains

why

countries

such

as China and Japan invest large sums in assets such as U.S. Treasuries. The holders
of the U.S. currency must put it to work somewhere! Note that foreign investors are
often getting better rates of return than what might be readily apparent because the
value of the domestic currency is falling relative to their own currency.
Q. 4. What is International Trade? Explain various Trade Reforms related to
foreign trade announced in India in recent times.
Ans: International

trade is

the

exchange

of capital, goods,

and services across international borders or territories.[1] In most countries, such

trade represents a significant share of gross domestic product (GDP). While
international trade has been present throughout much of history (see Silk
Road, Amber Road), its economic, social, and political importance has been on the
rise in recent centuries. It is the presupposition of international trade that a
sufficient level of geopolitical peace and stability are prevailing in order to allow
for the peaceful exchange of trade and commerce to take place between nations.
In most countries, such trade represents a significant share of gross domestic
product (GDP). While international trade has been present throughout much of
history (see Silk Road, Amber Road), its economic, social, and political importance
has been on the rise in recent centuries. It is the presupposition of international trade
that a sufficient level of geopolitical peace and stability are prevailing in order to
allow for the peaceful exchange of trade and commerce to take place between
nations.
International trade is also a branch of economics, which, together with international
finance, forms the larger branch called international economics. Trading is a value-

Name: Nivedita Kushwah

Enrollment Number: JNU-jpr/de/15/02/01/07274

added function: it is the economic process by which a product finds its market, in
which specific risks are to be borne by the trader.
Reforms related to foreign trade:In recent years, the governments stand on trade and investment policy has
displayed a marked shift from protecting producers to benefiting consumers.
This is reflected in its Foreign Trade Policy for 2004/09 which states that, "For
India to become a major player in world trade ...we have also to facilitate those
imports which are required to stimulate our economy."
India is now aggressively pushing for a more liberal global trade regime, especially
in services. It has assumed a leadership role among developing nations in global
trade negotiations, and played a critical part in the Doha negotiations.
India has recently signed trade agreements with its neighbors and is seeking new
ones with the East Asian countries and the United States. Its regional and bilateral
trade agreements - or variants of them - are at different stages of development:
India-Sri Lanka Free Trade Agreement,
Trade Agreements with Bangladesh, Bhutan, Sri Lanka, Maldives, China, and South
Korea.
India-Nepal Trade Treaty,
Comprehensive Economic Cooperation Agreement (CECA) with Singapore.
Framework Agreements with the Association of Southeast Asian Nations (ASEAN),
Thailand and Chile.
Preferential Trade Agreements with Afghanista, Chile, and Mercosur (the latter is a
trading zone between Brazil, Argentina, Uruguay, and Paraguay).

Name: Nivedita Kushwah

Enrollment Number: JNU-jpr/de/15/02/01/07274

JAIPUR NATIONAL UNIVERSITY, JAIPUR

School of Distance Education & Learning
Internal Assignment No. 2
Master of Business Administration / PGDM
Paper Code:
Paper Title:

MBA 101
Business Environment

Q1. Short Answer Type Questions:

Q. 1. Answer all the questions:
(i)

Name two elements of external environment affecting business.

Ans: External Environment External environment refers to external aspects of the

surroundings of business enterprise, which have influence on the functioning of
business.
Elelments:Suppliers:- Business enterprises requires a number of suppliers, who supply raw
materials and components to the company. It is an important force of the micro
environment of a company.
Competitor :-Activites of a business adjust according to the actions and reactions
of a competitors. This factor should be known to a company as the upcoming profit
or revenue will only be driven when this factor is in control.
(ii)

What do you understand by globalization?

Name: Nivedita Kushwah

Enrollment Number: JNU-jpr/de/15/02/01/07274

Ans: Globalization:-

Globalization (or globalisation) is the process of

international integration arising from the interchange of world views, products,

ideas and other aspects of culture.
Advance in transportation and telecommunications infrastructure, including the rise
of the telegraph and its posterity the Internet, are major factors in globalization,
generating further interdependence of economic and cultural activities.
The term globalization has been increasingly used since the mid-1980s and
especially since the mid-1990s. In 2000, the International Monetary Fund (IMF)
identified

four

basic

aspects

of

globalization

trade and transactions, capital and investment movements, migration and movement
of people, and the dissemination of knowledge. Further, environmental challenges
such as climate change, cross-Boundary water and air pollution, and over-fishing of
the ocean are linked with globalization. Globalizing processes affect and are
affected by business and work organization, economics, socio-cultural resources,
and the natural environment.

(iii)

What is monetary policy?

Ans: Monetary Policy:- Monetary policy is the term used by economists to

describe ways of managing the supply of money in an economy. Monetary policy is
the process by which the monetary authority of a country controls the supply of
money,

often

targeting

rate

of

interest for

the

purpose

of

promoting economic growth and stability. The official goals usually include
relatively stable prices and low unemployment. Monetary economics provides
insight into how to craft optimal monetary policy.

Name: Nivedita Kushwah

(iv)
Ans:

Enrollment Number: JNU-jpr/de/15/02/01/07274

What is Disinvestment?
Disinvesment:-

Disinvestment refers to the use of a concerted

economic boycott to pressure a government, industry, or company towards a change

in policy, or in the case of governments, even regime change. The term was first
used in the 1980s, most commonly in the United States, to refer to the use of a
concerted economic boycott designed to pressure the government of South
Africa into abolishing its policy of apartheid. The term has also been applied to
actions targeting Iran, Sudan, Northern Ireland, Myanmar, and Israel.
(v)

What is International Trade?

International trade: International trade is the exchange of capital, goods,
and services across international borders or territories. In most countries, such
trade represents a significant share of gross domestic product (GDP). While
international trade has been present throughout much of history (see Silk
Road, Amber Road), its economic, social, and political importance has been on
the rise in recent centuries. It is the presupposition of international trade that a
sufficient level of geopolitical peace and stability are prevailing in order to allow
for the peaceful exchange of trade and commerce to take place between nations

Note: Answer any two questions. Each question carries 5 marks (Word limits
500)
Q. 2. Explain various challenges to disinvestment programme.
Ans: The various challenges to disinvestment programme are as under :Reviving privatisation policy

Name: Nivedita Kushwah

Enrollment Number: JNU-jpr/de/15/02/01/07274

But proponents of reform think that such criticism should not deter the Government
from reviving its disinvestment policy, and they think the time is ripe to do so.
For, the forthcoming Budget will perhaps be the last opportunity for the UPA
Government to prove its credibility with some significant reforms. The next two
years may well go in managing the political economy ahead of the next general
elections. Second, for the past four years, the economy has turned in a consistently
robust performance and this now needs to be leveraged by bold policy initiatives.
Third, the nagging worries over the poor physical and social infrastructure such as
power, irrigation, rural connectivity, education, and health. Apart from policy and
institutional support, these functional areas call for massive financing support from
the government. Indeed, the sustainability of high economic growth will be
circumscribed by how effectively the government deals with these challenges.
Economic resurgence
It is essential that the Government sends a powerful message of its ability to push
through some challenging reforms such as disinvestment and/or strategic sale of
PSUs. At this stage, such efforts make sense for a variety of reasons: First, the
Centre has the major responsibility of improving the budgetary health on a
sustained basis, not just in response to the Fiscal Responsibility and Budget
Management Act targets, but also to keep on a tight leash its internal indebtedness.
India's debt-GDP ratio (excluding contingent liabilities) continues to be very high at
about 68 per cent, and annual debt servicing at Rs.381,929 croreknocks off over 38
per cent of total revenue receipts of the Central Budget. Withdrawal of budgetary
support to sick PSUs will reduce the pressure on budgetary resources immediately,

Name: Nivedita Kushwah

Enrollment Number: JNU-jpr/de/15/02/01/07274

while the subsequent strategic sale will unlock significant resources. A part of this
can be used to repay the governments' high-cost debt. Second, a number of PSUs
that are partly divested have been seeing unprecedented valuations, thanks to their
improved performance. The opportunities afforded by the excellent valuations,
based on the performance of many profit-making PSUs, must be leveraged.
Capital raising activity on rise
Capital raising activities of the private corporate sector are on the rise and in the
coming

yearmajor

companies

together

are

expected

to

raise

whopping Rs. 100,000 crorefrom the capital market. Why should profit-making
PSUs shy away or be denied the opportunity of raising new equity and in the
process also divest a part of the existing equity capital is a moot question.
Expanding equity base
Third, and related to the previous observation, is the issue of expanding the equity
base of the economy on a continuous basis, given that now there is a robust capital
market infrastructure and the need to make available an increased quantity of
quality equity to investors. In fact, a reactivated disinvestment programme will
provide a powerful thrust to spread the equity culture and strengthen the capital
market.
Q. 3. Explain Fiscal policy & its effect on business.
Ans: Government spending policies that influence macroeconomic conditions.
Through fiscal policy, regulators attempt to improve unemployment rates, control
inflation, stabilize business cycles and influence interest rates in an effort to control
the economy. Fiscal policy is largely based on the ideas of British economist John

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Maynard Keynes (18831946), who believed governments could change economic

performance by adjusting tax rates and government spending.
Microeconomic effects of tax changes
1. Taxation and work incentives:

Changes in income taxes affect the incentive to work. Consider the impact of
a rise in income tax.

This has the effect of reducing the post-tax income of those in work because
for each hour of work taken the total net income is now lower.

This might encourage the individual to work more hours to maintain his/her
target income.

Conversely, the effect might be less work since the return from each hour
worked is less.

Changes to the tax and benefit system seek to reduce the risk of the poverty
trap where households on low incomes see little financial benefit from
supplying extra hours of their labour

2. Taxation and the Pattern of Demand

Changes to indirect taxes can alter the pattern of demand for goods and
services

For example, the rising value of duty on cigarettes and alcohol is designed to
cause a substitution effect and reduce the demand for what are perceived
as de-merit goods.

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The use of indirect taxation and subsidies is often justified on the grounds of
instances of market failure. But there might also be a justification based on
achieving a more equitable allocation of resources e.g. providing basic
state health care free at the point of use.

3. Taxation and labour productivity

Some economists argue that taxes can have a significant effect on the
intensity with which people work and productivity. But there is little strong
empirical evidence to support this view. Many factors contribute to
improving productivity tax changes can play a role - but isolating the
impact of tax cuts on productivity is extremely difficult.

The Laffer curve

Created by the US supply-side economist Arthur Laffer, this curve explores a

relationship between tax rates and tax revenue collected by governments

It argues that as tax rates rise, total tax revenues grow at first but at a
diminishing rate.

There may be a tax burden which yields the highest tax revenues. Beyond
this, further hikes in taxation serve only to lower revenues

The Laffer curve has been used as a justification for cutting taxes on income
and wealth - the argument being that improved incentives to work and create
wealth will broaden the base of tax-paying businesses and individuals and
also reduce the incentive to avoid and evade paying tax.

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A Keynesian view is that lower direct taxes stimulate higher spending within
the circular flow which itself boosts demand, output, profits and employment,
all of which can drive tax revenues higher.

The Laffer curve came back into the news in spring 2009 when the Labour
government announced a rise in the top rate of income tax designed to raise
more than 5bn per year. Laffer curve supporters argue that it might fail to do
this,

perhaps

even

cause

revenues

to

fall.

Fiscal Policy and the Economic Cycle

Many countries introduced a fiscal stimulus during the years 2008-2010 to boost
confidence and demand and prevent a deflationary slump. But how effective is
fiscal policy in the aftermath of a huge global demand shock? What are some of the
consequences of a big rise in government borrowing?

Fiscal policy is the Governments main demand-management tool.

Government spending, direct and indirect taxation and the budget balance
can be used counter-cyclically to help smooth out some of the volatility of
real national output particularly when the economy has experienced
an external shock.

Discretionary fiscal changes are deliberate changes in taxation and govt

spending for example a decision by the government to increase total capital
spending on road building.

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Automatic fiscal changes (also known as automatic stabilisers) are

changes in tax revenues and state spending arising automatically as the
economy moves through the trade cycle.

Automatic stabilizers refer to how fiscal policy instruments will influence the rate
of GDP growth and help counter swings in the business cycle.

During phases of high GDP growth, automatic stabilizers reduce the growth
rate and avoid the risks of an unsustainable boom and accelerating inflation.
With higher growth, the government will receive more tax revenues and there
will be a fall in unemployment so the government will spend less on
unemployment and other welfare benefits.

In a recession, because of lower incomes, people pay less tax, and

government spending on unemployment benefits will increase. The result is
an automatic increase in government borrowing with the state sector injecting
extra demand into the circular flow.

Recent evidence from the OECD suggests that a government allowing the fiscal
automatic stabilizers to work might help to reduce the volatility of the cycle by up
to 20 per cent. The strength of the automatic stabilizers is linked to the size of the
government sector (e.g. government spending as a % of GDP), the progressivity of
the tax system and how many welfare benefits are income-related. In short
automatic stabilizers help to provide a cushion of demand in an economy and
support output during a recession.