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Note: Answer any two questions. Each question carries 5 marks (Word limits 500)
Q.1 Explain Monetary policy & its effect on business ADVERTISEMENT
Monetary policy consists of the decisions made by a government concerning the money supply and
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interest rates. In the United States, the Federal Reserve (the Fed) determines and implements monetary
policy. Home
The effects of monetary policy on business are manifold. Though in a direct sense it affects only
domestic business enterprises, foreign business entity who has an interest and stake in domestic market
also gets affected to an extent. for simplicity, I am explaining three major impact on domestic business About Me
units.
1. By changing say interest rate (one of many policy instruments available to RBI i.e. Repo, CRR,SLR purva infotech
etc.), Monetary policy can affect the amount of liquidity in the system. Say RBI increases Repo Rate.
The borrowing cost of commercial banks will now go up and they will pass the same to their View my complete profile
borrowers. Generally an industry needs loan from Banks to expand its business or any kind of
investment. Now since loan has become more costlier, it will negatively affect their investment
decision.
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2. Continuing from above scenario of increased Repo: Apart from this direct effect on business entity,
there is also another effect which plays through consumers. The people who are working in different
business industries are also consumers of different goods in market. If a business industry shuns its
investment decision, it means it is not generating extra employment which could have been there if the PurvaInfotech
business had hired people for its new investment or increase the salary of existing ones for their
increased effort. So because of this lost increase in income of the people who are employed or loss of ► 2019 (2)
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05/06/2019 Purva Infotech: MBA-101 Behavior Organization JNU jaipur
employment opportunities, spending (hence demand for various goods and service) of these people will ► 2018 (47)
not increase. In this way it can affect the demand for a wide range of products and affect many business
industries. ▼ 2017 (28)
3. Also stocks can be traded as goods by consumers on exchange. As mentioned in the previous point, ► December (2)
monetary policy can affect one’s income and hence demand for various goods, so stock price can also
vary based on the demand and thus market capitalization of a business can change. ► November (9)
► October (2)
Q.2 What is International Trade? Explain various Trade Reforms related to foreign trade
▼ September (2)
announced in India in recent times.
MBAR-102(Organization
International trade is the exchange of goods and services between countries. This type of trade gives rise Behaviour) JNU Jaipur
to a world economy, in which prices, or supply and demand, affect and are affected by global events.
MBA-101 Behavior Organization
Political change in Asia, for example, could result in an increase in the cost of labor, thereby increasing JNU jaipur
the manufacturing costs for an American sneaker company based in Malaysia, which would then result in
an increase in the price that you have to pay to buy the tennis shoes at your local mall. A decrease in the ► July (4)
cost of labor, on the other hand, would result in you having to pay less for your new shoes. ► June (5)
Trading globally gives consumers and countries the opportunity to be exposed to good sand services not ► March (1)
available in their own countries. Almost every kind of product can be found on the international market:
► January (3)
food, clothes, spare parts, oil, jewelry, wine, stocks , currencies and water. Services are also traded:
tourism, banking, consulting and transportation. A product that is sold to the global market is an export,
and a product that is bought from the global market is an import. Imports and exports are accounted for in
acountry's current account in the balance of payments
The new foreign trade policy 2015-2020 is kept ready to make necessary shape after forming new
Government, on 1st of April, 2015. However, the validity of Foreign Trade Policy 2015-2020 will be with
effect from the first notification at the time of declaration of FTP 2015-20. The FTP 2015-20 comes in to
force with effect from 01st April 2015.Changes in schemes and incentives are expected in new Foreign
Trade Policy 2015-20.However, the status quo might be maintained under some of the schemes. The
priorities of policies taken by new government also are likely to be incorporated in new Foreign Trade
Policy 2015-2020 (FTP 2015-20).The new Foreign Trade Policy 2015-2020 (FTP 2015-20) is made
product wise and location wise and tried to maximize the foreign trade from the country. Although some
exporters could not make benefit out of Foreign Trade Policy of 2009 -14, those exporter scan contact
local office of Director General of Foreign Trade DGFT to get assistance. Pre policy suggestions to
Foreign Trade Policy 2015-2020 (FTP 2015-20)have been sent from different government departments
concerned, Export Promotion Councils, Commodity Boards, Manufacturer’s associations, Traders forum,
and other export promotion agencies of government and non government to the concerned authorities to
shape new Foreign Trade Policy 2015-2020. Customs and Banking related matters also have been updated
after discussing all concerned to mold Foreign Trade Policy 2015-2020 (FTP 2015-20) in such a way to
safeguard exporters of the county by resolving their previous issues under Foreign Trade Policy
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introduces money in the system and reduces the interest rate.
For example is a consumer products company selling off a profitable division that no longer meets its long
range goals. The proceeds from this disinvestment are then used to improve the company's financial position
by reducing its debt.
Q. 3. What is Foreign Direct Investment? Explain its importance. Explain government policies
regarding FDI.
ANSWER- Foreign direct investment (FDI) is an investment made by a company or individual in one
country in business interests in another country, in the form of either establishing business operations or
acquiring business assets in the other country, such as ownership or controlling interest in a foreign
company. Foreign direct investments are distinguished from portfolio investments in which an investor
merely purchases equities of foreign-based companies. The key feature of foreign direct investment is that it
is an investment made that establishes either effective control of, or at least substantial influence over, the
decision making of a foreign business.
FDI has a major role to play in India’s economic development. The total FDI inflow in our country was
US$27 billion in 2010-11. Over the past few years, many sectors have seen the growth of foreign
investment. The Government is also coming out with new reforms to promote more and more of this
investment.
Investment policy of India can be broadly classified into two periods – 1948-1990 and 1991
onward. Till 1990, there were only restricted policies and regulated inflows. But from 1991 onward,
India witnessed liberalization of foreign investment laws.
The Government announced in 1991, a list of industries in which Foreign Direct Investment would
be automatically allowed up to 51 percent (Foreign Equity).
These industries ranged from the capital goods and metallurgical sector to the entertainment,
electronic, food processing and service sectors with significant export potential. Hotels and tourist-
related areas were also allowed foreign equity holdings by international trading companies of up to
51 percent.
In order to accelerate the progress of the power sector, 100 per cent foreign equity participation was allowed
for setting up power plants. Such equity participation allowed free repatriation of profits and other
incentives.
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