Question No. 2A) IBO - 01 International Business Environment Mcom 1st Year

 

Solutions to Assignments 

IBO-01 International Business Environment

Solutions to Question No. 2 (A)

The main cause of the disequilibrium in the balance of payments arises from imbalance between exports and imports of goods and services. When for one reason or another exports of goods and services of a country are smaller than their imports, disequilibrium in the balance of payments is the likely result.

When the prices of goods are high in the country, its exports are discouraged and imports encouraged. If it is not matched by other items in the balance of payments, disequilib­rium emerges.

• Cyclical Disequilibrium:

Cyclical disequilibrium is caused by the fluctuations in the economic activity or what are known as trade cycles. During the periods of prosperity, prices of goods fall and incomes of the people go down. These changes in incomes of the people and prices of goods affect exports and imports of goods and thereby influence the balance of payments.

“If prices rise in prosperity and decline in depression, a country with a price elasticity for imports greater than unity will experience a tendency for a decline in the value of imports in prosperity, while those for which imports price elasticity is less than one will experience a tendency for increase. These tendencies may be overshadowed by the effects of income changes, of course. Conversely, as prices decline in depression, the elastic demand will bring about an increase in imports, the inelastic demand a decrease.”

• Secular or Long-Run Disequilibrium:

Secular (long-run) disequilibrium in balance of payments occurs because of long-run and deep-seated changes in an economy as it develops from one stage of growth to another. The current account in the balance of payments follows a varying pattern from one stage to another.

In the initial stages of development, domestic investment exceeds domestic savings and imports exceed exports. Disequilibrium arises due to lack of sufficient funds available to finance the import surplus, or the import surplus is not covered by available capital from abroad.

Then comes a stage of growth when domestic savings tend to exceed domestic investment and export outrun imports. Disequilibrium may result because the long-term capital outflow falls short of the surplus savings or because surplus savings exceed the amount of investment opportunities abroad. At a still later stage of growth domestic savings tend to equal domestic investment and long-term capital movements are on balance, zero.

• Technological Disequilibrium:

Technological disequilibrium in the balance of payments is caused by various technological changes. Technological changes involve inventions or innovations of new goods or new tech­niques of production. These technological changes affect the demand for goods and productive factors which in turn influence the various items in the balance of payments. Each technological change implies a new comparative advantage to which a country adjusts to.

The innovation leads to increased exports if it is a new good and export-biased innovation. The innovation may lead to decline in imports if it is import-biased. This will create disequilibrium. A new equilibrium will require either increased imports or reduced exports.

• Structural Disequilibrium:

Let us see how the structural type of disequilibrium is caused. “Structural disequilibrium at the goods level occurs, when a change in demand or supply of exports alters a previously existing equilibrium, or when a change occurs in the basic circumstances under which income is earned or spent abroad, in both cases without the requisite parallel changes elsewhere in the economy.”

A change in supply may also cause a structural disequilibrium. Suppose Indian jute crop falls because of the change in the shift in the crop-pattern, Indian jute exports will fall and disequilibrium will be created. Apart from goods, a loss of service income may also upset the balance-of-payments position on current account.

Here we detail about the four methods adopted to correct disequilibrium in balance of payments.

1. Trade Policy Measures: Expanding Exports and Restraining Imports:

Trade policy measures to improve the balance of payments refer to the measures adopted to promote exports and reduce imports.

Exports may be encouraged by reducing or abolishing export duties and lowering the interest rate on credit used for financing exports. Exports are also encour­aged by granting subsidies to manufacturers and exporters.

Therefore, India had to face great difficulties with regard to balance of payments. At several occasions it approached IMF to bail it out of the foreign exchange crisis that emerged as a result of huge deficits in the balance of payments. At long last, economic crisis caused by persistent deficits in balance of payments forced India to introduce structural reforms to achieve a long-lasting solution of balance of payments problem.

2. Expenditure-Reducing Policies:

The important way to reduce imports and thereby reduce deficit in balance of payments is to adopt monetary and fiscal policies that aim at reducing aggregate expenditure in the economy. The fall in aggregate expenditure or aggregate demand in the economy works to reduce imports and help in solving the balance of payments problem.

3. Expenditure – Switching Policies: Devaluation:

A significant method which is quite often used to correct fundamental disequilibrium in balance of payments is the use of expenditure-switching policies. Expenditure switching policies work through changes in relative prices. Prices of imports are increased by making domestically produced goods relatively cheaper. Expenditure switching policies may lower the prices of exports which will encourage exports of a country. In this way by changing relative prices, expenditure-switching poli­cies help in correcting disequilibrium in balance of payments.

The important form of expenditure switching policy is the reduction in foreign exchange rate of the national currency, namely, devaluation. By devaluation we mean reducing the value or exchange rate of a national currency with respect to other foreign currencies. It should be remembered that devaluation is made when a country is under fixed exchange rate system and occasionally decides to lower the exchange rate of its currency to improve its balance of payments.

Under the Bretton Woods System adopted in 1946, fixed exchange rate system was adopted, but to correct fundamen­tal disequilibrium in the balance of payments, the countries were allowed to make devaluation of their currencies with the permission of IMF. Now, Bretton Woods System has been abandoned and most of the countries of the world have floated their currencies and have thus adopted the system of flexible exchange rates as determined by market forces of demand for and supply of them.

4. Exchange Control:

We know that deflation is dangerous; devalu­ation has a temporary effect and may provoke others also to devalue. Devaluation also hits the prestige of a country. These methods are, therefore, avoided and instead foreign exchange is controlled by the government.

Under it, all the exporters are ordered to surrender their foreign exchange to the central bank of a country and it is then rationed out among the licensed importers. None else is allowed to import goods without a licence. The balance of payments is thus rectified by keeping the imports within limits.

After the Second War World a new international institution’ International Monetary Fund (IMF)’ was set up for maintaining equilibrium in the balance of payments of member countries for a short term. Member countries borrow from it for a short period to maintain equilibrium in the balance of payments. IMF also advises member countries how to correct fundamental disequilibrium in the balance of Payments when it does arise. It may, however, be mentioned here that no country now needs to be forced into deflation (and so depression) to root out the causes underlying disequilib­rium as had to be done under the gold standard. On the contrary, the IMF provides a mechanism by which changes in the rates of foreign exchange can be made in an orderly fashion.

Question No. 1B) IBO - 01 International Business Environment Mcom 1st Year

 

Solutions to Assignments 

IBO-01 International Business Environment

Solutions to Question No. 1 (B)

An international business environment refers to the surrounding in which international companies run their businesses. Therefore, it is mandatory for the people at the managerial level to work on the factors that comprise of International Business Environment.

• Economic Environment in International Business

The economic environment relates to all the factors that contribute to a country’s attractiveness for foreign businesses. The economic environment can be very different from one nation to another. Countries are often divided into three main categories: the more developed or industrialised, the less developed or third world, & the newly industrialising or emerging economies.

Within each category, there are major variations, but overall the more developed countries are the rich countries, the less developed the poor ones, & the newly industrialising (those moving from poorer to richer). These distinctions are generally made on the basis of the gross domestic product per capita (GDP/capita). Better education, infrastructure, & technology, healthcare, & so on are also often associated with higher levels of economic development.

Clearly, the level of economic activity combined with education, infrastructure, & so on, as well as the degree of government control of the economy, affect virtually all facets of doing business, & a firm needs to recognise this environment if it is to operate successfully internationally. While analysing the economic environment, the organisation intending to enter a particular business sector may consider the following aspects:

1. An Economic system to enter the business sector.
2. Stage of economic growth & the pace of growth.
3. Level of national & per capita income.
4. Incidents of taxes, both direct & indirect tax
5. Infrastructure facilities available & the difficulties thereof.
6. Availability of raw materials & components & the cost thereof.
7. Sources of financial resources & their costs.
8. Availability of manpower-managerial, technical & workers available & their salary & wage structures.

Question No. 1a) IBO - 01 International Business Environment Mcom 1st Year

Solutions to Assignments 

IBO-01 International Business Environment

Solutions to Question No. 1 (a)

A vibrant international trade environment benefits all participating parties. Countries with high levels of international trade have stronger economies, better standards of living and steadier growth.

1. International Trade Raises Living Standards

Exports boost the economic development of a country, reduce poverty and raise the standard of living. The world's strongest economies are heavily involved in international trade and have the highest living standards, according to the Operation for Economic Co-operation and Development (OECD).

Countries like Switzerland, Germany, Japan and the Scandinavian countries have high volumes of imports and exports relative to their gross domestic product and offer high standards of living. Nations with lower ratios of international trade, such as Greece, Italy, Spain and Portugal, face serious economic problems and challenges to their living standards. Even with low wages, less developed countries can use this advantage to create jobs related to exports that add currency to their economy and improve their living conditions.

2. Exports Increase Sales

Exporting opens new markets for a company to increase its sales. Economies rise and fall, and a company that has a good export market is in a better position to weather an economic downturn.

Furthermore, businesses that export are less likely to fail. It's not only the exporting companies that increase sales; the companies that supply materials to the exporters also see their revenues go up, leading to more jobs.

3. Exports Create Jobs 

A company that increases its exports needs to hire more people to handle the higher workload. Businesses that export have a job growth 2 to 4 percent higher than companies that don't; these export-related jobs pay about 16 percent more than jobs in companies with fewer exports. The workers in these export-related jobs spend their earnings in the local economy, leading to a demand for other products and creating more jobs.

4. Imports Benefit Consumers

Imported products result in lower prices and expand the number of product choices for consumers. Lower prices have a significant effect, particularly for modest and low-income households. Studies show that lower import prices save the average American family of four around $10,000 per year.

Besides lower prices, imports give consumers a wider choice of products with better quality. As a result, domestic manufacturers are forced to lower their prices and increase product lines to meet the competition from imports. Even further, domestic vendors may have to import more components of their products to stay price competitive.

5. Improved International Relations

International business removes rivalry between different countries and promotes international peace and harmony. Mutual trade creates a dependence on each other, improves confidence and fosters good faith.

A good example of co-dependency of nations is the relationship between the United States and China. Even though these countries have significant political differences, they try to get along because of the huge amount of trade between them.

IBO-01 International Business Environment Mcom 1st Year

SOLUTIONS TO ASSIGNMENTS

IBO - 01 - International Business Environment

Question 1 a) How can the study of the International Business Environment be useful for Managers? Give your arguments.                                             CLICK HERE

Question 1 b) Briefly explain the Economic and Financial Environment of International Business.                                              CLICK HERE

Question 2 a) How does disequilibrium occur in the balance of payments? Describe the methods of correcting the disequilibrium with examples.       CLICK HERE

Question 2 b) Illustrate the advantages and disadvantages of FDI. Discuss the role of FDI in the economic development of the host country.     CLICK HERE

Question 3 Distinguish between the following: 

(a) Micro and Macro Business Environment. 

(b) Flexible and Fixed Exchange Rate. 

(c) GATT and WTO. 

(d) Export Sales Contract and Domestic Sales Contract.           CLICK HERE

Question 4 Comment on the following statements: 

(a) Indian foreign trade policy does not facilitate the import of technology. 

(b) ICC has no role in arbitration and conciliation. 

(c) All contracts are agreements but all agreements are not contracts. 

(d) World Trade is not concentrated in a few countries and products.       CLICK HERE

Question 5 Write notes on the following: 

(a) Political Risks. 

(b) Alternative Dispute Resolution (ADR). 

(c) Wagering Agreement. 

(d) Code of Ethics for International Marketing.                     CLICK HERE 

Question No. 5 - MMPC-004 Accounting for Managers

Solutions to Assignments 

MMPC - 004 - Accounting for Managers

Solutions to Question No. 5

If you turn on the news today, you will likely see a story related to fraudulent activity. As criminals and scammers adapt to a world that revolves around the internet, committing fraud has become far easier. According to the Global Fraud and Identity Report, 33% of businesses experienced more fraud losses than they did in the prior year. Thankfully, people with excellent numerical skills are seeking employment as forensic accountants. Forensic accountants use their auditing abilities combined with investigative skills to determine what causes suspicious financial activity. Businesses use this information as credible evidence in trials and/or to recover losses from a scam.

Forensic accounting is the term used to describe the type of engagement. It is the whole process of carrying out a forensic investigation, including preparing an expert’s report or witness statement, and potentially acting as an expert witness in legal proceedings.

Forensic investigation is a part of a forensic accounting engagement. Forensic investigation is the process of gathering evidence so that the expert’s report or witness statement can be prepared. It includes forensic auditing, but incorporates a much broader range of investigative techniques, such as interviewing witnesses and suspects, imaging or recovering computer files including emails, physical searches of premises etc.

Forensic auditing is the application of traditional auditing procedures and techniques in order to gather evidence as part of the forensic investigation.

• Method of Fraud Detection in Forensic Audit

The major applications of forensic accounting include fraud investigations, negligence cases and insurance claims.

An insurance claim would require determination of how much the client should claim from the insurer. The first step would be a detailed review of the insurance policy to determine ‘coverage’, ie what is insured and any clauses that might restrict the amount that can be claimed or invalidate the claim.

The second step would be to gather evidence to quantify the loss, ie the amount to be claimed. Insurance claims might include claims following misappropriation of assets, ie theft of goods or money. In such cases, the forensic accountant will review inventory or cash records and details of sales and purchases to reconcile the amounts held and determine the value of the goods or cash stolen. They will also test the reliability of the information held by counting a sample of inventory or cash currently held in comparison with the client’s records. The forensic accountant will not assume that there has been a theft; they will consider other possibilities such as an error in the data held.

Insurance claims may however, be much more complicated than this, such as in the case of business interruptions arising as a result of fire or flood. In these types of engagements the forensic accountant will review prospective financial information in comparison with reported outturn to evaluate the loss of profit arising as a result of the business interruption. The forensic accountant will not assume that there has been any loss of profit due to the business interruption; they will consider other possibilities such as a straightforward loss of market share to a competitor.

Forensic engagements often require the forensic accountant to quantify a loss. One such engagement is in professional negligence claims, ie when another accountant has breached their duty of care to a client or third party resulting in a loss for that client. In these types of engagement, the forensic accountant would also provide an opinion on whether the duty of care owed has been breached, ie whether the audit or other accountancy service was performed in accordance with current standards in practice, legislation and techniques. In relation to an audit, this would require consideration of whether the International Standards on Auditing were followed.

The need for a forensic accountant may also arise because two parties cannot agree on the amount owed by one party to another, and the accountant is engaged to provide an expert valuation, of a business for example.

This might be the case in a matrimonial dispute, where a divorcing couple whose assets include shares in a company or partnership, engage a forensic accountant to value the company so that a settlement can be reached. A similar process might apply in partnerships, when one partner wishes to leave the partnership and is being bought out by the remaining partner(s). 

• Techniques in Forensic Audit

There are several techniques for conducting a forensic review of the business. The ones provided below are generic but effective. These are the forensic techniques that apply to almost all companies. These are:

1. Reviewing Public Documents and Conducting Background Checks

The documents made available to the public are scrutinized as they are the easiest to obtain. Also, thorough background checks of a particular company are done to see the past dealings of the business. Public Documents would include any information in the public database, the corporate records, and any legally available information on the internet.

2. Conducting Detailed Interviews

Conducting an interview is an essential technique that can transform an unwilling person into a source of valuable information. It helps in fully understanding all the facts. An interview should be conducted by accurately assessing the gravity of the situation and preparing the questions according to it. Discussions should take every detail into account and look at the greater picture to figure out the magnitude of the illegal activity and the culprit responsible.

3. Gathering Information from Trustworthy Sources

Information provided by a confidential and trustworthy source can be precious to any case. When a piece of information is gained from a confidential source or a confidential informant, all the necessary precautions should be taken to hide the identity of the so-called cause. A forensic accountant should try to have as many confidential sources as possible because such sources can virtually guarantee a correct result.

4. Analyzing Evidence Gathered

Proper analysis of the obtained evidence can point to the guilty party and assist in understanding the extent of the fraud committed in the business. Furthermore, this analysis would also help understand how secure the company is against financial scams and installing various austerity measures to prevent any such future situation.

5. Conducting Surveillance

This can be done physically or electronically and is one of the conventional measures to uncover any fraud. It can be done by monitoring and tracking all the official emails and messages.               

6. Going Undercover

This is an extreme measure and should be used only as a last resort. It is best left to the professionals as they know how and where to conduct the investigations. Even a small mistake while being undercover can signal the offender that something is wrong, and the person might vanish.

7. Analyzing the Financial Statements

This is a special tool for finding out the fraud committed. All the necessary details are summarised in the financial statement, and the analysis of these statements can help a forensic accountant figure out the scam.

Nowadays, the economic conditions are getting stricter, and each country’s government is now implementing tighter laws regarding the governance of the businesses. As the companies are increasing the level of sophistication, so is fraud. This has led to a higher sensitivity to fraud which can be interpreted as massive demand for the services of forensic accountants by all the businesses.