Government policy changes and trade relations

A government makes changes in policies that have an impact on international business. Many reasons
may cause governments to change their policies toward foreign enterprises. High unemployment,
widespread poverty, nationalistic pressure, and political unrest are just a few of the reasons that can
lead to changes in policy. Changes in policies can impose more restrictions on foreign companies to
operate or limit their access to financing and trade. In some cases, changes in policy may be favorable
to foreign businesses as well.

Source: Don McCubbrey. Political and legal risk in international business. Business Fundamentals.
Boundless, 21 Jul. 2015. Retrieved 08 May. 2016
from https://www.boundless.com/users/235420/textbooks/business-fundamentals/internationalbusiness-for-the-entrepreneur-14/political-and-legal-risk-in-international-business-57/political-and-legalrisk-in-international-business-256-15559/

Legal Analysis
Legal Forces are important and play a vital role for the establishment andcontinuous
successful operation of the bank. So the legal forces should be carefully observed by the
banks. In our country State Bank of Pakistan is thecentral bank which governs all the banks. All the
banks need to work with inthe instructions and the permissions of the SBP.In our analysis we found
the following facts related to the legal forces in microenvironment of the bank:

The most basic and important role of SBP is that it

determinesthe Rate of interest ( cost of borrowing money ) for the banks . The banks are
bound to give the loans at the interest rates that are fixed bythe government. Now days due
to high Interest rate the
banks arereceiving less demand from private sector. People also complain the banks about
high Interest rates.

Another legal instruction that is given by the government is

thatn o b a n k i s a l l o w e d t o l e a k o u t t h e p e r s o n a l i n f o r m a t i o n o f a n y customer. But
if some intelligence agencies like FIA or governmentalinstitutions like FBR
need the personal information of some one thanthe banks would
have to provide the required information to thatinstitution.

Another legal liability on the bank is that they have to keep afixed amount of their reserve with the SBP
and with remaining reservesthey have to do their business. The amount that must be deposited
tothe SBP is determined by the SBP.

A t t h e e n d o f t h e d a y t h e b a n k s n e e d t o m a t c h o u t t h e i r reserves with the deposits

that are allowed by the government to keepwith them.

Economical Analysis
In the banking industry the economic forces of the country matters a
lot.Economic conditions aff ect diff erent variables like incomes , employment, recession and
prosperity which influences the demand for banking services in
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that country . So a bank must understand the Economic forces that affect the banking industry in order
to enjoy a successful carrier.Some Economic factors which we analyzed from this analysis
are given below:

In the current situation when economy is at nearly at recession .So government needs to increase
its expenditure and for that purpose itwill have to borrow from the local banks , which would increase
thedemand for the loans by the government.


The rate of interest is increasing due to which the demand for money is decreasing and
on other hand the supply of the money is increasing. Most of private firms and households
are not borrowing themoney from the banks due to higher interest rate.

If we look at the global economic situation than we can see

thatnearly whole world is passing through recession , banks are shuttingd o w n b e c a u s e
p e o p l e a r e g o i n g b a n k r u p t , s o m o s t o f t h e p e o p l e globally are not keeping their m
oney in the banks . But luckily noteven a single bank has been shut downed in Pakistan
and the bankshave managed their good reputation in the eyes of people due to whichthe
Pakistani banking industry is not facing the mistrust situation by thegovernment.

Political Analysis
Political forces also play an important role for the continual of the smooth and regular
operations of the bank. The present political scenario of Pakistan isfavorable for the banking sector
because the present government is establishingand maintaining good relations with the foreign nations
due to which many of foreign banks have entered the Pakistani banking industry.
One important force that aff ects the operations of bank in aspecifi c country is the
stability of the government of that
country.Currently the political situation of Pakistan is stabilized due to whichthe people
are keeping their money in banks and banks have enoughmoney supply to carry their
regular operations. In case if the stability isdisturbed than the people will take out their money from
the banks dueto which their will be shortage of money supply for banks and wouldnot be able to carry
on their smooth operations.

Another eff ect of the political forces is that basically all the banks work under
the supervision of the State Bank of Pakistan (SBP).SBP decides the interest rate, Balance
reserves with the banks and
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many other policies. So when the government changes the some policiesare also changed this
aff ects the banking industry a lot. The present policies and instructions given by the SBP are
favorable for the banksand the banks are happy with the current governmental policies.