Business Environment and International Business Questions and Answers

Answer: B

The policy is fiscal policy.

Fiscal policy is the government's use of public expenditure, taxation and borrowing, set out each year in the Union Budget. Tax rates, subsidies, spending on infrastructure and the size of the deficit directly change demand, costs and profits, so it has a major impact on business.

Monetary policy is run by the central bank (the RBI) through interest rates and money supply, not through public expenditure and revenue. Trade policy governs imports and exports, and foreign exchange policy governs the currency and capital flows; neither is about the government's own spending and revenue.

Answer: D

SEZ stands for Special Economic Zone.

An SEZ is a geographically demarcated area treated as foreign territory for trade and customs purposes, with its own simpler rules and tax concessions, set up to attract investment, promote exports and create jobs. In India they are governed by the Special Economic Zones Act, 2005, which replaced the older Export Processing Zones.

'Special Export Zone' is a tempting guess because exports are a main aim, but it is not the name. The European and Environmental expansions have no connection with the term.

Answer: D

On the key's reading, the force that is not listed is increasing population.

Marketing and business environment texts single out a few forces that are reshaping how firms operate and to which they must respond directly: the consumer movement (consumerism), which presses for safe products, fair dealing and information; environmentalism, which presses for less pollution and resource use; and the changing competitive environment brought by liberalisation and globalisation.

Population growth is a demographic trend that shapes the size of markets over time, often as an opportunity, rather than one of these pressures the business is confronted with, so the key treats it as the odd one out.

Answer: B

GATT was an agreement.

The General Agreement on Tariffs and Trade was signed in 1947 by 23 countries and came into force in 1948. It was a multilateral treaty, applied provisionally, setting rules to reduce tariffs and other barriers, and it held eight rounds of trade negotiations, ending with the Uruguay Round. It had only a small secretariat and was never a formal international organisation.

The Uruguay Round created the World Trade Organization, an organisation with legal personality, on 1 January 1995. GATT was not a policy or a conference; its rules survive within the WTO as GATT 1994.

Answer: D

The item that is not in the current account is external borrowings.

The current account of the balance of payments records transactions that do not create claims for the future: exports and imports of goods (the trade balance), trade in services, primary income such as interest, dividends and wages, and transfers such as remittances.

External borrowings, such as loans taken from abroad and their repayment, create liabilities and belong to the capital (financial) account. The interest paid on them, however, is a current account item, which is why interest payments, import of services and export of goods are all current account entries.

Answer: A

The ADB promotes growth and co-operation among countries in Asia and the Far East.

The Asian Development Bank was established in 1966, with its headquarters in Manila, on the initiative of the United Nations Economic Commission for Asia and the Far East (ECAFE). Its charter states its purpose as fostering economic growth and co-operation in the region of Asia and the Far East and contributing to the development of its developing member countries.

The other options name only parts of that region: South East Asia, South and West Asia and South and Central Asia are each narrower than the area its charter covers.

Answer: C

The feature that does not belong is effective promotion of small industries widely dispersed in rural areas and small towns.

The Statement on Industrial Policy of 24 July 1991 made four main changes: it abolished industrial licensing except for a short list of industries; it opened the economy to foreign investment, with automatic approval up to 51 per cent in priority industries, and to foreign technology agreements; it reduced the areas reserved for the public sector; and it amended the MRTP Act to scrap the provisions on concentration of economic power and pre-entry approval of large houses.

Measures for small, tiny and village enterprises were announced separately, in a policy statement of August 1991, so they were not among the salient features of the July statement. That is why the other three options, which describe the July changes, are wrong.

Answer: C

The one that is not a technique of environmental analysis is Networking.

In the strategic management framework of Glueck and Jauch, managers gather information about the business environment through four techniques: verbal or written information (reports, publications, conversations), search and scanning, spying (gathering intelligence on competitors), and forecasting and formal studies (econometric models, surveys and other systematic research).

Verbal or written information, spying, and forecasting and formal studies are all in that list, so those options are wrong. Networking, in the sense of building contacts, is a way of doing business rather than one of the recognised techniques of environmental analysis.

Answer: A

Special Drawing Rights are international reserve assets.

The SDR was created by the International Monetary Fund in 1969 to supplement the official reserves of its member countries. It is allocated to members in proportion to their IMF quotas and can be exchanged among them for freely usable currencies. Its value is based on a basket of major currencies, which since 2016 has been the US dollar, euro, Chinese renminbi, Japanese yen and pound sterling.

It is not an Indian regulatory authority, it is not a regional asset of any group of countries, and it has nothing to do with foreign direct investment, which is investment by foreigners in productive enterprises.

Answer: D

Balance of trade takes into account export and import of only merchandise goods.

The balance of trade is the difference between the value of a country's exports and imports of visible items, that is, physical goods (merchandise). India, for instance, runs a large trade deficit because its merchandise imports, led by oil and gold, exceed its merchandise exports.

Services such as software, tourism and transport are invisible items. Together with merchandise trade, transfers and income they make up the current account of the balance of payments, which is a wider measure than the balance of trade. Movements of capital are recorded in the capital account. So the options that bring in services alone, goods and services, or capital describe other parts of the balance of payments.