3rd September 2011

Managerial Economics

Assignment - A

Q.1: What are indifference curves? Explain the consumers’ equilibrium under

the assumptions of ordinal approach.

Q.2. Examine the concept and relationship of Total, Average and marginal

costs with the help of suitable diagram.

Q.3. Differentiate and elaborate the concepts of returns to scale and law of

variable proportions.

Q.4. Why is demand forecasting essential? What are the possible consequences

if a large scale firm places its product in the market without having estimated

the demand for its product?

Q.5. Discuss the various steps involved in a managerial decision making

process. Explain, in detail, any two group decision making techniques.

Assignment - BQ.1. Why a firm is price taker and not a price maker under perfect market

conditions?

Q.2. Profit maximization is theoretically the most sound but practically

unattainable objective of business firms. In the light of this statement critically

appraise the Baumol’s sales revenue maximization theory as an alternative

objective of the firm.

Q.3. Distinguish between skimming price and penetration price policy. Which

of these policies is relevant in pricing a new product under different

competitive conditions in the market?

CASE STUDY

Managerial Economics

Introduction

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Michael Wolfson, a computer programmer had a decent job with the financial

powerhouse Bear, Stearns & Co. Now, he refurbishes computers at the

basement in his house and sells it through e-bay. He plans to join as a school

teacher. Michael lost his job in 2003. He was told that his job is being

outsourced to India. Paul Schwartz, a mainframe programmer, who was

earning $ 80,000 a year was told that his services were no longer required. He

suspects that his job has been outsourced to India.

There is growing dissent among the Americans against the increasing practice

of outsourcing. It has become an electoral issue in the coming presidential

elections in the US. The Democratic candidate, John Kerry has made it an

emotive issue, despite economists trying to portray the positive aspects of

outsourcing.

There are numerous reasons for the growing apathy towards outsourcing. The

prevailing economic situation and the increasing joblessness in the US have

added fuel to the fire. However, many analysts feel that joblessness in the US is

cyclical in nature resulting from the recession of 2001 and hence, a recovery will

create job opportunities.

Moreover, according to the U.S.-India Business Council, the increasing

unemployment is also due to corporate restructuring and just a quarter of the

job loss is due to outsourcing. Since, the beginning of 2001, the real job loss in

US is estimated to be 2.3 million. In comparison, the actual job loss due to

outsourcing is estimated to be only 200,000. Thus, it can be said that there are

various other reasons for joblessness in the US. The outcry against outsourcing

seems to be driven more by politics rather than economics.

Outsourcing forms a small proportion of the jobs that are regularly churned in

the US economy. On an average, 24 million jobs are churned in the US every

month. In the process, resources are allocated, for more productive purposes.

To come out of the recession and raise the standards of living, higher

productivity seems to be the only solution. The debate on outsourcing gathered

momentum only in the recent past. A study by Forrester, a research group, in

the year 2002, brought the issue into limelight. The report claims that by 2015,

3.3 million white-collar jobs in the US would be transferred to countries like

India.

But is outsourcing so bad for the US economy? Gregory Mankiw, professor of

economics at the Harvard University and head of President Bush's Council of

Economic Advisers, recently told presspersons that outsourcing of jobs is in

better interest of US. According to him, outsourcing lowers the cost for

consumers, making the corporations more efficient. There were a series of

articles in The Economist, highlighting the advantages of outsourcing.

The Economics of Outsourcing

There are many influential groups in the US who are perturbed by the recent

outcry against outsourcing. Says Charles E Morrison, President, East West

Center, a US based think tank, "Off-shoring is not an economic problem, but

an economic opportunity". Many analysts in the US feel that anti off-shoring

bills in the US would prove to be ineffective. Similar views were echoed by

Michael T Clark of US-India business council. He says that, "Jobs lost to off-

shoring were less than a quarter of all jobs lost in the US in 2002. The rest were

lost due to corporate restructuring. The current debate in the US on off-shoring

is informed by lack of facts".

In an article, "Why Your Job Isn't Moving to Bangalore" in the New York Times,

Jagdish Bhagwati, a senior fellow at the Council on Foreign Relations and

professor at Columbia University writes that the panic and furor over

outsourcing is completely unwarranted. He further says that no jobs are being

taken away from America. He says that the affect of changes in technology is

being felt in the labor intensive industries. According to him, the loss of jobs in

the US is due to technological changes.

Professor Bhagwati is also critical about politicizing the whole issue. He says that

outsourcing will strengthen the competitiveness of the US companies. Firms

ignoring the cheaper supplies would lose out. Professor Bhagwati further says

that outsourcing service jobs is nothing different from importing of labor-

intensive textiles and other goods. According to him, all empirical studies in the

US over the last two decades suggest that wage stagnation in the manufacturing

industry is more due to automation of the processes, not the cheaper imports.

The same is applicable to service industry as well.

Jane Linder of Accenture's Institute for Strategic Change says that companies

outsourcing the traditional back-office work have more control and discipline

over their operations. Moreover, employees of the company can concentrate on

framing strategies. Further, outsourcing also results in greater efficiency and

lowering costs. This allows companies to offer better services to customers. A

study done by McKinsey Global Institute reveals that for every dollar of work

outsourced by the US, it gets back $1.14 as income, and the countries to which

the work is being outsourced gains 35 cents. This shows that outsourcing is a

win-win situation for both the countries.

Benefits for US Benefits for India

Savings to US investors or customers 0.58 Labor 0.1

Imports of US goods and services by

providers in India 0.05

Profits retained in

India 0.1

Transfer of profits by US based providers in

India back to US 0.04 Suppliers 0.09

Net direct benefit retained in US 0.67 Central

government taxes 0.03

Value for US labor reemployed 0.45-

0.47

State government

taxes 0.01

Potential net benefit for US 1.12-

1.14 Net benefit to India 0.33

Source: Mckinsey Global Institute

There is a definite cost advantage in off-shoring work to India. These advantages

are a result of lower wages in the developing countries along with the

development of telecommunications in these countries. A report published by

HSBC, which has off-shored more than 4,000 jobs to India, says that the

telephone costs from India to America and Britain has decreased by almost

80%, since January 2001. The wage difference between these countries is also a

factor that forces the companies to outsource their business processes to India.

A study done by NASSCOM, says that the average salary of an IT professional

in UK is $96,000, in US it is $75,000, whereas in India it is just $26,000. The

wage difference between the low end call center jobs of both the countries is

also very wide. An average call center employee in UK earns $20,000 on the

average. Whereas, a call center professional in India barely manages to earn one

tenth of the earnings of their British counterparts.

Offshoring allows companies to work round the clock. It gives ample time to

the companies to think about their IT problems. Recently, American Express

paid $5,000 to a group of software programmers in India, to develop a package

for them. The same would have cost them several million dollars in US.

The benefits of outsourcing go much beyond the cost advantage. An article in

Mckinsey quarterly suggests that the companies need to look beyond cost

savings. The article says that "Companies are merely replicating what they do at

home, where labor is expensive and capital is relatively cheap, in countries in

which the reverse is true."

Alan Greenspan, US Federal Reserve Chairman, is a staunch supporter of

outsourcing. He is of the opinion that any move to curb outsourcing of work to

countries like India and China, might give just a temporary relief. Reacting to

the proposed legislations in the US banning outsourcing, Greenspan said, "A

new round of protectionist steps is being proposed against outsourcing. These

alleged cures will make matters worse". Greenspan feels that any effort to

protect US jobs through legislation would backfire.

Not all companies have taken full advantage of outsourcing. According to

Harris Miller, president of the Information Technology Association of America

(ITAA), a lobby group, so far only 3-4 % of all American companies outsource

their processes. The remaining still rests with American firms. A report

published by Forrester, in December 2003, says that 60% of the Fortune 1000

companies have a negligible or near nil presence in off-shoring. Report also

suggests that 40% of the work of these companies could be outsourced. Thus,

the potential for growth in outsourcing is still immense.

Advancement in the technology can give a further push to the off-shoring

activity. The inflexible architecture of the current technologies is acting as a

hindrance in off-shoring, says Simon Heap of Bain & Co, a consultancy firm.

The advancement in software and hardware would enable the companies to off-

shore even small activities. Firms would be able to off-shore the activities of the

entire department, say billing of customers.

However, not everyone seems to agree with the supporters of outsourcing.

Stephen Roach, the chief economist at Morgan Stanley, says that it is only the

wage difference that is encouraging companies to outsource work to India or

any other developing country. He further says that joblessness is taking away

the charm of recovery in the US.

Many analysts also feel that companies should take some concrete steps to

minimize the affects of outsourcing. Companies should make the process of job

transfers to offshore destinations more smooth. British Telecom exhibited a

process of outsourcing that can be used as a model by other companies.

In 2003, when BT announced that it is planning to open two call centers in

India, with a capacity of 2200 people, it was criticized from all corners. It was

said that BT was not acting in a socially responsible manner. Realizing the

gravity of the situation, BT approached Sustainability, an international

consultancy, specializing in business strategy and sustainable development. The

consultancy firm was asked to find whether or not outsourcing and corporate

social responsibility (CSR) co-exist.

Sustainability noted that the immediate impact of outsourcing would be job

loss for the employees, and the resulting affect on the society. The consultancy

firm was of the opinion that before outsourcing, companies should address the

negative impact of outsourcing. In order to check the negative impact of off-

shoring, firms should consult with employees, trade unions, communities and

other key stakeholders. Employees should be involved in the process of any

such decision making. Sustainability also suggested that firms should be

transparent and make the employees know the services that are being

outsourced.

Firms should also make an attempt to redeploy the employees in some other

departments. This would minimize layoffs. An attempt should be made to

retrain the redundant workers. A part of the savings from off-shoring should be

invested for this purpose. As per the suggestion made by McKinsey Global

Institute, 4-5% of the resulting savings from off-shoring should be used for

insurance policy for employees to cover the lost wages.

US was one of the prime supporters of free trade. US was least bothered about

the concerns of many other developing countries when they raised their voices

against job losses as a result of the cheap exports. But, this aggressiveness seems

to have mellowed down in recent days. It always propagated that inefficient

industries should be closed. One of the primary tasks of the U.S. Trade

Representative's office was to keep a check on the world markets. It assesses the

markets which are opening up and which are getting closed as a result of high

tariffs and other quantitative restrictions. Now, with the growing efficiency of

developing countries in the service sectors, many jobs in these sectors are being

transferred to developing countries (of which a major chunk is coming to

India). US is worried about the increasing joblessness but that seems

paradoxical. It hails globalization but when it comes to the developing countries

trying to reap the benefits of globalization, it raises all sorts of issues.

Recently the US government has tightened the visa norms. The number of H-

1B visas issued to Indian software programmers fell to 65,000 from 1,95,000 in

2003. Analysts feel that this would increase outsourcing of jobs further,

particularly to India. According to Craig Barrett, the chief executive of Intel,

granting of fewer visas would force the companies to shift their jobs to

countries like India, where there is no dearth of qualified engineers.

Despite no ban from the federal authorities on outsourcing, many States have

initiated the process of putting restrictions on outsourcing government work to

foreign countries. The lawmakers in the state of New Jersey have proposed a bill

that stops firms to outsource any government related work to a foreign country.

Succumbing to the public pressure, the government was forced to bring back a

helpline for welfare recipients that was being outsourced to India. Similarly, the

state of Indiana withdrew a $ 15 million contract from an American subsidiary

of an Indian IT firm. Commenting on the move, the Indiana governor said that

contract was not in tune with Indiana's vision of providing better and more job

opportunities to local companies and workers. However, analysts feel that these

decisions have been influenced by political pressure in the backdrop of coming

presidential elections in the US.

The Indian BPO industry is not taking the outcry against outsourcing in the US

seriously. Indian BPO firms are no longer just call centers. Their activities now

cover marketing and knowledge based services. These companies are now

aspiring to become strategic partners for US companies. There is a sudden

spurt in the number of venture capitalists willing to invest in different areas.

Though, some software companies can't hide their concern over the legislations

banning government related off-shoring in the long-run but, for now they are

clear that, these legislature will have negligible effect on the current contracts

with the private companies. Reacting to the whole issue, Narayana Murthy,

Chairman and Chief Mentor of Infosys said that there is no issue to worry

about. He termed the outcry as normal. He suggested that rather than getting

worried and agitated, Indians should put forward their point of view and

explain the advantages of off-shoring. He said that the present uncertain

economic situation is responsible for the concern over the job losses in the US.

Many analysts feel that the opposition to outsourcing may not end with the US

presidential elections. With many of the American States, coming out with

legislations banning government contracts to other countries, the issue of off-

shoring is going to be alive. Conditions for off-shoring may become favorable

with the improvement in the performance of the US economy.

Question for discussion:Que. 1 Give your opinion on outsourcing and its impact on the prospects of

growth of the economy of home Nation and host nation.

Guidelines for the answer: Discuss the issue in the perspective of opportunity

and threats faced by developing and developed nations.

Assignment -C

Q.1. A change in quantity demanded refers to

(a) Contraction along a demand curve

(b) Shift of the demand curve

(c) Movement along a demand curve

(d) Expansion along a demand curve

Q.2. A change in demand refers to

(a) Contraction along a demand curve

(b) Shift of the demand curve

(c) Movement along a demand curve

The Indian Response

(d) Expansion along a demand curve

Q.3. If two goods are substitutes, the price elasticity of demand is

(a) Negative

(b) Positive

(C) Zero

(d) Not defined

Q.4 If two goods are complementary, the price elasticity of demand is

(a) Negative

(b) Positive

(C) Zero

(d) Not defined

Posted 3rd September 2011 by educare4u

3rd September 2011

Leveraging Information Technology in Global Business

ASSIGNMENT - A

Q.1 “Information systems can add great value to businesses” What are the

benefits of information systems in business? Why are information systems

important?

Q.2 ABB Corporation is a company, which has implemented an information

system to improve its operational performance. What according to you would

be the activities the information system would perform?

Q.3 What are the types of Business Information Systems. Explain only the

functional perspective.

Q.4 Explain Porter’s competitive models

Q.5 Briefly explain the database approach to database management

Leveraging Information Technologyin Global Business

ASSIGNMENT - B

Q.1 What is Artificial Intelligence? What is the need for AI in today’s

world?

Q.2 Ethical Dimensions of IT are often neglected, which lead to

complications in businesses. Explain in brief, the ethical and social dimensions

of IT.

Q.3 Briefly explain who a hacker is and what the activities of a hacker are?

Case Study

MR Ltd. Manufactures industrial glues and solvents in a ingle large factory.

Approximately 400 different inputs are used to produce 35 specialist outputs,

which range from ultra-strong glue used in aircraft manufacture to high impact

adhesives that are required on construction sites.

Two years ago, with the company only just breaking even, the directors

recognized the need for more information to control the business. To assist

them with their strategic control of the business, they decided to establish an

MIS. This is now operational but provides only the following limited range of

information to the directors via their networked computer system.

1. A summary business plan for this and the next two years. The plan

includes details of expected future incomes and expenditures on

existing product lines. It was produced by a new member of the

accounting department without reference to past production data.

2. Stock balances on individual items of raw materials, finished goods

etc. This report is at a very detailed level and comprises 80% of the

output from the MIS itself

3. A summary of changes in total demand for glues and solvents in the

market place for the last five years. This information is presented as a

numerical summary in six different sections. Each selection takes up

one computer screen so only one section can be viewed at a time.

Read the above case and answer the following questions:

1. (i) Comment on the weaknesses in the information currently being

provided to the directors of the company

(ii) Suggest how the information may be improved, with particular

reference to other outputs, which the MIS might usefully provide to the

directors.

2. Explain what strategic information any MIS is unlikely to be able to

provide.

ASSIGNMENT - C

Q.1 The flow of information through MIS is

(a) structure dependent

(b) need dependent

(c) organization dependent

(d) market dependent

Q.2 The back bone of any organization is

(a) services

(b) employee

(c) information

(d) infrastructure

Q.3 MIS helps the organization in

(a) process of placement

(b) process of decision making

(c) process of production

(d) process of distribution

Q.4 Information requirement within organization are

(a) always similar

(b) different

(c) easily available

(d) vast

Q.5 MIS always refers to

(a) computer system

(b) computer system and manual system

(c) always manual information

(d) none of the above

Q.6 MIS as a combination of human and computer based resources result into

(a) collection and storage

(b) retrieval and communication

(c) both of the above

(d) none of above

Q.7 The information of MIS comes from the

(a) internal resource of the organization

(b) external resource

(c) both internal and external resource

(d) none of above

Q.8 Internal information for MIS may come from

(a) materials dept.

(b) HR and marketing dept.

(c) finance dept

(d) all of the above

Q.9 __________ systems record day-to-day transaction such as customer orders, bills,

production output

(a) Transaction processing

(b) Management Information

(c) Decision support

(d) None

Q.10 Information Systems are considered

(a) Short-term capital investment project

(b) As a measure of cash flow

(c) Long-term capital investment project

(d) Means for lowering enterprise cost

Q.11 Historically, IS design put technical issues above

(a) Organizational concerns

(b) Operations

(c) Costs

(d) Goals

Q.12 In data mining, events that are linked over time are known as

(a) Associations

(b) Sequences

(c) Classification

(d) Clusters

Q. 13 Data Mining can allow a firm to develop

(a) Specific marketing campaigns for different customers section

(b) Intuitive user interfaces

(c) DDS based on web

(d) Multiple distributed system

Q,14 When, where and how to apply knowledge is called:

(a) Wisdom

(b) Information

(c) Data

(d) Knowledge

Q.15 Knowledge that resides in the mind of the employees is known as

(a) Organizational knowledge

(b) Tacit knowledge

(c) Standard operating procedure

(d) none

Q.16 Which of the following is based on a suite of integrated software modules and a

common central database?

(a) Enterprise system

(b) Network operating system

(c) Transaction processing system

(d) Management Information System

Q.17 The Internet poses specific security problems because:

(a) it was designed to be easily accessible.

(b) everyone uses it.

(c) viruses cannot be controlled.

(d) it changes so fast.

Q. 18 A computer virus is:

(a) software written with malicious intent to cause annoyance or damage.

(b) a process of scrambling a message so that it cannot be read until it is unscrambled

again.

(c) a small device that scans the number from credit cards.

(d) an ID-checking tool to monitor who is logged onto a network.

Q.19 Software that sits on the Internet analyzing Web traffic is referred to as a:

(a) worm.

(b) cracker.

(c) cookie.

(d) sniffer.

Q.20 Tricking people into revealing their password by pretending to be legitimate users or

members of a company in need of information is called:

(a) snooping.

(b) social engineering.

(c) spoofing.

(d) spamming.

Q.21 Every record in a file should contain:

(a) more than one field.

(b) an entry in the key field.

(c) at least one numeric field.

(d) a denominating stabilizer.

Q. 22 The confusion created by data redundancy makes it difficult for companies to:

(a) create online processing capabilities.

(b) work in batch processing load.

(c) use a distributed database.

(d) integrate data from different sources.

Q.23 Data redundancy occurs when:

(a) multiple reports are accessed simultaneously.

(b) the programs that access the data are changed.

(c) different users enter information.

(d) fields in many different files contain the same information.

Q.24 A field is also called a(n):

(a) attribute.

(b) data element.

(c) Characteristic.

(d) entity-relationship.

Q.25 This database model uses a series of logically related two-dimensional tables or files

to store information:

(a) relational database

(b) hierarchical database

(c) network database

(d) object-oriented database

Q.26 The capacity for manipulating and analyzing large volumes of data from multiple

perspectives is called:

(a) OLAP.

(b) OODBMS.

(c) normalization.

(d) data cubing

Q. 27 A data warehouse may include:

(a) legacy systems.

(b) only internal data sources.

(c) privacy restrictions.

(d) small data marts.

Q. 28 Digital firms require:

(a) massive computer capacities.

(b) new organizational designs and management processes.

(c) exceptional flexibility transaction processing systems.

(d) networks that bypass traditional channels.

29. In the past, information about products and services was usually:

(a) controlled by the sales department.

(b) part of the physical value chain for those products and services.

(c) available only by mail.

(d) kept within the boundaries of the company.

30. The Internet shrinks:

(a) survival potential in banks.

(b) symmetrical relationships between businesses.

(c) information asymmetry.

(d) time and money factors in financing.

31. Which of the following Internet business models provides a digital environment where

buyers and sellers can meet, search for products, display products, and establish prices for

those products?

(a) Portal

(b) Virtual community

(c) Online marketplace

(d) Transaction broker

32. Information technology plays a critical role in helping organizations:

(a) maintain the existing bureaucratic structure.

(b) work with nonroutine tasks.

(c) develop better-educated employee groupings.

(d) perceive environmental change.

33. In the early years, the information systems group was composed mostly of:

(a) systems analysts.

(b) mid-level managers.

(c) end users.

(d) programmers.

34. According to the Mintzberg model of management, decisional roles are:

(a) where managers initiate activities, handle disturbances, allocate resources, and

negotiate conflict.

(b) where managers act as figureheads and leaders for the organization.

(c) where managers act as a liaison, disseminating and allocating resources.

(d) the expectations of the activities that managers should perform in an organization.

35. This individual is credited with the development of the five forces competitive model.

(a) Henry Fayol

(b) Max Weber

(c) Michael Porter

(d) Michael Dell

36. These systems typically provide periodic reports rather than instant information on

operations:

(a) strategic-level systems.

(b) operational-level systems.

(c) management-level systems.

(d) knowledge-management systems.

37. ESSs are:

(a) strategic-level systems.

(b) management-level systems.

(c) operational-level systems.

(d) transaction-level systems.

38. The major source of data for other systems are:

(a) ESS.

(b) TPS.

(c) DSS.

(d) MIS.

39. Unlike other types of information systems, these systems are NOT designated

primarily to solve specific

problems:

(a) executive support systems.

(b) management information systems.

(c) decision-support systems.

(d) transaction processing systems.

40. Data shaped into meaningful form are

called:

(a) a databank.

(b) feedback.

(c) knowledge.

(d) information.

Posted 3rd September 2011 by educare4u

2nd September 2011

Accounts and Finance

Assignment A

This assignment consists of 5 analytical covering the syllabus till Analysis of Financial

Statements.

Problem 1:

Journalize the following transactions in the books of Mr. Walter:

a) Paid rent of building $ 12,000 half of the building is used by the proprietor for

residential use.

b) Paid fire insurance of the above building in advance $ 1,000.

c) Paid life insurance premium $ 2,000.

Accounts and Finance

d) Paid income-tax $ 3,000.

e) Salary due to clerk $ 500.

f) Charge depreciation on furniture @ 10% p.a. for 1 month (furniture $ 12,000).

g) Provide interest on capital ($ 60,000) at 15% p.a. for 6 months.

h) Charge interest on drawing (10,000) at 18% p.a. for 6 months.

i) Provide interest on loan to Ram ($ 100,000) at 18% p.a. for 2 months.

j) Charge interest on loan to Shyam ($ 200,000) at 18% p.a. for 2 months.

k) Received commission $ 1,000 half of which is in advance.

l) Brokerage due to us $ 500.

Problem 2:

From following figures extracted from the books of Mr. XYZ, you are required to prepare a

Trading & Profit & Loss Account for the year ended 31st March, 2008 and a Balance Sheet

as on that date after making the necessary adjustments.

$ $

Mr. XYZ’s Capital 228,800 Stock 1.4.2007 38,500

Mr. XYZ ‘ Drawings 13,200 Wages 35,200

Plant & Machinery 99,000 Sundry creditors 44,000

Freehold property 66,000 Postage & Telegrams 1,540

Purchases 110,000 Insurance 1,760

Rtuens outwards 1,100 Gas & fuel 2,970

Salaries 13,200 Bad debts 660

Office Expenses 2,750 Office rent 2,860

Discount A/c (Dr.) 5,500 Loose tools 2,900

Sundry Debtors 29,260 Factory lighting 1,100

Loan to Mr. Krish @10% p.a. 44,000 Provision for doubtful debts 880

Balance on 1.4.2007 Interest on loan to Mr. Krish 1,100

Cash at bank 29,260 Cash in hand 2,640

Bills payable 5,500 sales 231,440

Adjustments:

a) Stock on 31st March, 2008 was valued at $ 72,600

b) A new machine was installed during the year costing $15,400 but it is not recorded

in the books as on payment was made for it. Wages $ 1,100 paid for its erection

has been debited to the wages account.

c) Depreciate :

a. Plant & machine by 33.33%

b. Furniture by 10%

c. Freehold property by 6%

d) Loose tools were valued at $ 1.760 as on 31.3.2008

e) Of the sundry debtors Rs.660 are bad and should be written off.

f) Maintain a provision of 5% on sundry debtors for doubtful debts.

g) The manager is entitled to a commission of 10% of the net profits after charging

such commission.

Problem 3:

Following is the Trial Balance of M/s. Trinity Foods as on 30th June 2007 (after closing

Nominal Accounts). Prepare a Balance Sheet on the basis of this trial balance.

Particulars Debit (Rs.) Credit (in Rs.)

Cash 10,000

Capital 100,000

Bank 77,000

Furniture 25,000

Ram 15,000

Rahim 50,000

Trading & Profit & Loss 47,000

162,000 162,000

Problem 4:

Given below are the financial statements of Safal Enterprises, using the tool of ratio

analysis comment on the profitability and liquidity position of the firm for the year 2006-07.

Total no. of shares outstanding for the firm is 2.69crores. In the view of growth opportunities

in the near future the firm has been maintaining a policy of 45% payout.

Summarized P & L of Safal Enterprises

For the year ended 31 March

Particulars 2006 2007

( Rs. In crores)

Sales 132.00 144.00

Other income 12.00 15.00

Cost of sales 102.96 110.02

Gross margin 29.04 33.98

Operating expenses

Administration 12.44 14.36

Selling & distribution 4.42 5.36

Profit before interest & tax (PBIT) 24.18 29.26

Interest 3.00 4.01

Profit before tax (PBT) 21.18 25.26

Provision for taxes 7.94 9.47

Profit after tax (PAT) 13.24 15.79

Balance Sheet of Safal Enterprises

Particulars 31/03/06 31/03/07

(Rs in crores)

Assets

Fixed assets 31.25 37.50

Current assets

Inventory 14.56 16.64

Accounts receivable 13.20 15.43

Cash 1.50 1.75

Less: Current liabilities 8.55 11.25

Net current assets 20.71 22.57

Total Assets 51.96 60.07

Liabilities &owners equity

Share capital 27.00 27.00

Reserves & Surplus 4.96 6.36

Debt(long term) 20.00 26.71

Total 51.96 60.07

Problem 5:

Given below are the balance sheets of the two firms- Gloria Ltd and Victoria Ltd as on 31st

March 2007.

Gloria Ltd. Victoria Ltd.

Assets

Cash and Bank balance 12.70 38.60

Marketable securities 10.00 21.00

Sundry debtors 22.00 23.70

Prepaid expenses 93.50 162.45

Current Assets 1.12 2.14

Fixed Assets (Net) 139.32 247.90

Total Assets 589.00 642.00

728.323 889.895

Liabilities and Owners Equity

Sundry creditors 6.75 26.45

Notes payable 6.56 6.45

Long term debt 130.01 345.00

Equity 585.00 512.00

Total 728.323 889.895

1. Can the financial positions of the two firms be compared assuming that the two firms

fall in the same industry?

Assignment B

This assignment is covering the remaining syllabus and a case study.

Problem 1:

Find out the cost of raw material purchased from the data given below:

Particulars Rs.

Prime cost 200,000

Closing stock of raw material 20,000

Direct labour cost 100,000

Expenses on purchases’ 10,000

Problem 2:

The product of a manufacturing concern passes through two processes A and B and then to

finished stock. It is ascertained that in process A normally 5% of the total input is scrap

which realizes Rs. 80 per tonne.

From the following information relating to process A for the month of August 2007, prepare

process A account

Materials 500 tonnes

Cost of materials Rs. 125 per tonne

Wages Rs. 14,000

Manufacturing overheads Rs. 4,000

Output 415 tonnes

Problem 3:

Ahmedabad Company Ltd. manufactures and sells four types of products under the brand

name Ambience, Luxury, Comfort and Lavish. The sales mix in value comprises the

following:

Brand name Percentage

Ambience 33 1/3

Luxury 41 2/3

Comfort 16 2/3

Lavish 8 1/3

------

100

The total budgeted sales (100%) are $ 600,000 per month.

The operating costs are:

Ambience 60% of selling price Luxury

Luxury 68% of selling price Comfort

Comfort 80% of selling price Lavish

Lavish 40% of selling price

The fixed costs are $. 159,000 per month.

a) Calculate the breakeven point for the products on an overall basis.

b) It has been proposed to change the sales mix as follows, with the sales per

month remaining at $. 6,00,000:

Brand Name Percentage

Ambience 25

Luxury 40

Comfort 30

Lavish 05

---

100

Assuming that this proposal is implemented, calculate the new breakeven point.

Case study:

Bajaj Auto Limited: The Unprecedented Growth Story

Bajaj Auto Limited is the flagship company of the Bajaj Group. The company manufactures

two & three wheelers. Mr. Rahul Bajaj is the present Chairman of the company. The

company was incorporated in the year 1945 as M/s Bachraj Trading Corporation Private Ltd.

The promoters hold about 30% equity, whereas Indian public holds about 26% and

institutional investors have more than 27% stake in the company.

The products manufactured by Bajaj Auto are scooters, motor cycles, auto spares parts,

machine tools, steel and engineering products. The company also produces three- wheelers

as goods carriers such as pick-up or delivery vans and passenger carriers such as auto-

rickshaws. Bajaj Auto has a network of 498 dealers, 1,500 authorized service centres and

162 exclusive three-wheeler dealers spread across the country.

Bajaj Auto has also diversified into the general as well as life insurance business through its

subsidiaries Bajaj Allianz General Insurance Company Ltd, respectively. The Bajaj brand

has presence in many countries such as Sri Lanka, Mexico, Bangladesh, Columbia, Peru,

Egypt, etc. The main competitors of the company in the two-wheelers and three-wheelers

segment are- Hero Honda Motors Ltd, Kinetic Motor Co Ltd, LML ltd, Maharashtra Scooters

Ltd, and TVS Motor Co. Ltd.

The company sold close to 23 lakh vehicles in 2005-06, which is a record performance in its

history. The sales of motorcycles manufactured grew by 32% in 2005-06 compared to a

market growth of below 19%. For the fifth successive year, the company raised its market

share in the motorcycle segment. Today it stands at almost 31%. Sales increased by

almost 31% to an all-time high of Rs 9,285 crore in 2005-06. the export of the company in

all its product categories has also been unprecedented during the FY 2005-06 as is

reflected in the figures given below:

Table A Product-wise exports of Bajaj Auto Ltd

Product 2005-06 2004-05 Growth

( in numbers ) (in percentage)

Motorcycles 165,288 123,946 33

Total two-wheelers 174,907 130,945 34

Three-wheelers 75,297 65,765 14

Total vehicles 250,204 196,710 27

Even more impressive has been the growth in company’s operating EBITDA, which

increased by 47% to touch Rs 1805 crore during 2005-06. Consequently the operating

EBITDA margin grew by 220 basis points to 17.9% of the sales and operating income.

Earnings per share have been risen from Rs 75.60 to Rs 111.00 in the current year.

Dividend too has grown to Rs 40 per share (400%) for the year ended 31st March 2006 as

against Rs 25 per share in 2005.

Over the past few years, Bajaj Auto has focused on his technology development, and

product development in anticipation of market needs, scaling up its manufacturing facilities,

implementing best-in-class production systems, rationalizing vendors, slashing costs while

upgrading quality, restructuring dealerships, and distribution channels. These capabilities

enabled the company to create exciting new products, which have set benchmarks in

styling, design, and technology. The company’s products are creating a customer pull at all

price points and the company has now transformed from being a price warrior to a price

leader. The results of these strategies are reflected in its financial statements as follows

(refer Table B and C):

Table B Profit and Loss Account for Bajaj Auto Ltd for the year ended

March 2003 March 2004 March 2005 March 2006

(Rs in crore)

Sales 4987.05 5721.44 7078.06 9284.84

Other income 297.10 507.04 516.41 602.52

Change in stocks 32.92 10.87 -11.57 50.10

5317.07 6239.35 7582.90 9937.46

Expenditure 4335.16 5017.92 6286.91 8131.87

Profit & Loss

PBDIT 981.91 1221.43 1295.99 1805.59

Interest 1.12 0.94 0.67 0.34

Depreciation 171.42 184.32 185.66 191.28

PBT 809.37 1036.17 1109.66 1613.97

Tax provision 274.44 285.41 349.32 509.37

PAT 534.93 750.76 760.34 1104.60

Dividends 159.81 285.37 288.64 461.50

Table C Assets and Liabilities of Bajaj Auto Ltd as on 31 March 2006

Liabilities Mar 05 Mar 06 Assets Mar 05 Mar 06

Rs in crore Rs in crore

Net Worth 4447.16 5349.79 Gross fixed

assets

2870.02 3092.28

Paid up Equity

capital

101.18 101.18 Capital WIP 9.14 25.26

Bonus Equity

capital

114.17 114.17 Less: cumulative

depreciation

1660.32 1834.19

Minority interest 89.46 148.79 Net fixed Assets 1205.64 1230.77

Reserves &

Surplus

4256.52 5099.82 Investments 5273.83 6865.43

Free reserves 4233.28 5076.58 Deferred tax

assets

9.20 6.43

Share premium

reserves

87.07 285.78 Inventories 224.70 274.47

Other free reserves 4146.21 4790.80 Receivables 3116.05 5799.11

Specific reserves 23.24 23.24 Sundry debtors 176.97 302.54

Borrowings 1229.17 1469.44 Debtors

exceeding 6

months

0.20 1.13

Deferred tax

liabilities

139.90 87.58 Advances/loans

to corporate

bodies

62.29 33.66

Current liabilities

& provisions

4284.64 7773.20 Group/associate

companies

34.44 19.41

Sundry Creditors 833.86 1404.40 Other companies 27.85 14.25

Other current

liabilities

1169.04 3674.37 Advance

payment of tax

1823.60 1869.40

Provisions 2281.74 2694.43 Other receivables 1053.19 3593.51

Cash & Bank

balance

266.88 476.48

Intangible/DRE

not written off

4.57 27.32

Total Liabilities 10100.87 14680.01 Total Assets 10100.87 14680.01

Notwithstanding its excellent financial performance in the years following its major strategic

shift, the management of the firm believes in the philosophy that the quest for perfection is

eternal.

To preclude the complacency from setting in, the management not only sets higher

standards it also continuously monitors its performance and benchmarks with the industry

performance in general and their closest competitors’ results in particular.

Discuss

1. Is the profitability performance of the firm satisfactory? If not, how can it be improved?

2. How attractive is the firm from the short-term and long-term lenders, perspective? Does

the firm appear to be the favorite destination in the automobile sector (two-wheelers

and three-wheelers segment) for the lenders?

3. How efficient is the firm been in utilizing the resources at its disposal? How do you

think the company can improve upon its efficiency?

Assignment ‘C’

State whether the following are ‘true’ or ‘false’:

1. Accounting is a language of business.

2. Accounting is a service function.

3. Accounting records only those transactions and events which are financial

character.

4. Drawings reduce capital.

5. Capital is increased by profit and decreased by losses.

6. The system of recording transaction on the basis of their two old aspects is

called double entry system.

7. Purchases made from B for cash should be debited to B.

8. Earnings of revenue means increase in Cash/Bank balance

9. The balance of an account is always known by the side which is shorter.

10. The return of goods by a customer should be debited to Returns Inwards

Account.

11. Goods bought for resale are referred to as Stocks

12. If the business has any liability, the proprietor’s capital must be more than the

total assets.

13. Withdrawal of money by the owner is an expense for the business.

14. Ledger is called the book of final entry.

15. Cash book is used to record all receipts and payments of cash.

16. Sales book is used to record all credit sales.

17. The journal is not a book of original entry.

18. Goodwill is an intangible asset.

19. Salaries & Wages appearing in the trial balance are shown on the liabilities side

of the balance sheet.

20. The profit & loss account is one of the financial statements.

21. Share having preferential right as to dividend and repayment of capital are

termed as equity share capital.

22. Shares which are not preference shares are called equity shares.

23. The amount of share premium received by the company is shown under the

heading reserves & surplus in the company’s balance sheet.

24. Debenture holders are not the member of the company.

25. There are no legal restrictions, similar to shares, for issue of debentures at

discount.

26. Fixed cost per unit remains constant.

27. Direct cost is that cost which can not be easily allocated to cost units.

28. Selling overheads form a part of cost of production.

29. Manufacturing and administrative overheads are different.

30. Total fixed cost remains unaffected by the change in volume of output.

31. Variable cost per unit remains fixed.

32. In chemical industries unit costing is used.

33. The output of a process is transferred to next process.

34. Good units bear the abnormal loss arising in the process costing.

35. Excess of pre-estimated loss over actual loss is known as abnormal loss.

36. Marginal costing is a method of ascertaining cost.

37. A firm earns no profit or incurs no loss at BEP.

38. Margin of Safety implies ‘Break Even Point’.

39. In marginal costing, stock is valued at fixed costs.

40. Sales below BEP mean profit.

Posted 2nd September 2011 by educare4u

2nd September 2011

PRINCIPLES OF GLOBAL BUSINESS MANAGEMENT

Assignment - A

1. Discuss the National Competitive Advantage Theory of International Trade.

How this theory is different from other theories.

2. Explain the following terms i) Tariff ii) Subsidies and Countervailing Duties iii)

Quotas iv) Voluntary Export Restraint v) Local Content Requirement. Why do

advanced countries insist on elimination of subsidies?

3. What is culture? What are the different components of culture? How study of

cross cultural management is relevant in today’s globalize world.

4. Critically evaluate the various alternatives available to an organization to enter

the foreign market. Give example for each one of them.

5. What is globalization? What are the main drivers of the globalization

phenomenon? Do your think technologies play an important role in

promoting International trade?

Assignment - B

Q1. Why do accounting systems of different countries differ? What are its

implications on company engaged in international business?

Q2. What are the main responsibilities of the Human Resource Manager in a MNC?

What are the different kinds of staffing policies in an global organization. What are

the main advantages and disadvantages of Ethnocentric, Polycentric and

Geocentric approaches to staffing policy?

Q3.Explain different types of organization structure in international business.

What are the advantages and disadvantages of each one of them?

CASE STUDY

The Daewoo Group and the Asian Financial Crisis

In 1999, the Daewoo Group, Korea’s second largest chaebol, or family owned

business conglomerate, collapsed under $57 billion in debt and was forced to split

into independent companies. The Asian Financial crisis and its aftermath finally

took its toll on the expansion-minded Daewoo and forced both Daewoo and the

Korean government to decide how to dissolve the chaebol .

Solved Assignments for Amity PanAfrican MBA BBA

Kim Woo-Choong started Daewoo in 1967 as a small textile company with only

five employees and $10,000 as capital. In just 30 years, Mr Kim had grown Daewoo

into a diversified company with 250,000 employees worldwide as well as over 30

domestic companies and 300 oversear subsidiaries that generated sales of more than

$100 billion annually. However, some estimates that Daewoo and its

subcontractors employed 2.5 million people in Korea. Although Daewoo started in

textiles, it quickly moved into other fields, first heavy and chemicals industries in

the 1970, and then technology intensive industries in the 1980s. By the end of 1999,

Daewoo was organized into six major divisions:

Trading Division

Heavy Industry and Shipbuilding

Construction and Hotel

Motor Vehicle Division’

Electronics and Telecommunications

Finance and Services

However, Daewoo was struggling. Its $50 billion debt was 40 percent greater than

in 1998, equaling 13 percent of Korea’s entire GDP. A good share of that total $10

billion, was owed to overseas creditors. Its debt-to-equity ratio (total debt divided

by share-holders equity) in 199 was 5 to 1, which was higher than the 4 to 1

average of other large cheabol, but it was significantly higher than the U.S

average, which usually is around 1 to 1 but which rarely climbs above 2 to 1. Of

course, there is no way of knowing the true picture of Daewoo’s financial

information because of the climate of secrecy in Korean companies. In addition it is

possible that Daewoo’s estimated debt might be greatly underestimated because no

one knows whether or not the $50 million figure included debt of foreign

subsidiaries.

How did Daewoo get into such a terrible position, and how much did the nature

of the Korean economy and the Asian Financial crisis affect Daewoo?

Korean Economy

The impact of the Asian financial crisis on Korea was partly a result of the

economic system of state intervention adopted by Korea in the mid-1950s. Modeled

after the Japanese economic system, the Korean authoritarian government targeted

export growth as the key for the country’s future. Initially, the government

adopted a strategy of import substitution, and that later gave way to a strategy of

“export or die”. Significant incentives were given to exporters, such as access to

low cost money (often borrowed abroad in dollars and loaned to companies at

below market interest rates in Korean won), lower corporate income taxes, tariff

exemptions, tax holidays for domestic suppliers of export firms, reduced rates on

public utilities, and monopoly rights for new export markets. Clearly, the

government wanted Korean companies to export

The chaebol, of which the four largest were Hyundai, Daewoo, Samsung and the

LGgroup, become the dominant business institutions during the rise in the Korean

economy. They were among the largest companies in the world and were very

diversified, as can be seen by the Daewoo’s investment and business choices. They

were held together by ownership, management and family ties. In particular,

family ties played an key role in controlling the chaebol. Until the 1980s, the bank

in Korea provided most of the funding to the chaebol, and were owned and

controlled by the government. Because of the importance of the exporting the

chaebol were all tied to general trading companies. The chaebol received lots of

support from the government, and they were very loyal to the government, giving

rise to the charges of corruption.

Most chaebol were initially involved in the light industry, such as textile

production, but the government realized that companies first shift to heavy

industry and then to technology industries. Daewoo transitioned to heavy

industry in 1976 when the Korean government asked President Kim to acquire an

ailing industrial firm rather than let the firm go out of business and create

unemployment.

Asian Financial Crisis and Its impact on Korea

The country continued to liberalize, and democracy finally came into being in 1988

with the introduction of a new constitution and the election of Kim Young-Sam,

the first democratic president in Korea’s history. The economy also continued to

grow at 5 to 8 percent annually during early to mid-1990s, led primarily by exports

and the World Bank predicted that Korea would have the seventh largest economy

in the world by 2020. However, the Asian financial crisis brought that growth to

halt. After the Thai bhat was devalued on July 2, 1997, the Korean won soon

followed, and the Korean stock market crashed as well. By the end of 1997, the

South Korean won was 46.2 percent lower than its pre devaluation rate. At the

time the crisis hit, Korea’s external debt was estimated to be $110 billion to $150

billion, 60 percent of it maturing in less than one year. In addition, Korea had

another $368 billion of domestic debt.

Korea’s banks had been a tool to state industrial policy, with the government

ordering banks to make loans to certain companies even if they were not healthy.

Banks borrowed mony in dollars and lent them to firms in won, shifting the

burden of foreign exchange from the firms to the banks. Hanbo steel and Kia

Motors went bankrupt leaving some banks with huge losses. The Korean won fell

in the fall of 1997 causing the government to raise interest rate to support the won

and resulting in more problem loans. Bad loans at the nine largest financial

institutions in Korea ranged from 94 percent to 376 percent of the banks capital,

making the banks technically insolvent.

The chaebol were also very overextended. The top five chaebol were in average of

140 businesses, ranging from semi-conductor manufacture to shipbuilding to auto

manufacturing. This was happening during a time when most companies in the

industrial world were selling off unrelated businesses and focusing on their core

competencies. Twenty five of the top 30 chaebol had debt-to-equity ratio of over 5

to 1, as noted earlier. Compare this to Toyota Motor of Japan, which had a debt-to-

equity ratio in 1998 of 0.7 to 1.

During this crisis, Korea began to negotiate with the IMF for help. The IMF agreed

to help, but only if Korea raised interest rates to support its currency, reduce its

budget deficits, reformed its banks, restructured its chaebol, improved financial

disclosure, devalued the currency (to stimulate export even more), promoted

exports, and restrict imports. In return for a pledge to introduce the reforms, the

IMF released funds to Korea to help it pay off its foreign debt and to keep its bank

from going bankrupt. This in turn brought in more money from foreign banks

that were encouraged by Korea’s pledge to reform.

One of the IMF’s key area was banking reform. The IMF encouraged Korea to open

up its banking sector to foreign investment, hoping that an infusion of foreign

banking expertise might help the Korean banks to make better loans. OF course,

foreign banks had made a sizable number of bad loans in Asia as well. In addition,

the IMF encouraged the Korean government to pass good bankruptcy laws to

allow bad companies, including banks to fail. However, IMF hoped that Korean

banking institutions would merge, forming fewer but stronger banks. In addition,

the IMF encouraged banking reforms in order to cut the links between bankers and

politics, tighten supervision and regulation of he banking industry, and improve

accounting disclosure.

Impact of the crisis on Daewoo

While the financial crisis was going on, Daewoo’s president Kim ignored the

warning signs and continued to expand. In 1998, a year when the Daewoo Group

lost money, it added 14 new firms to its existing 275 subsidiaries. While Samsung

and LG were cutting back Daewoo added 40 percent more debt.

Finally Korean President Kim Dae Jung had enough. He ordered the banks to stop

lending to chaebol until they come up with and began to execute a plan to sell off

businesses and to focus on their core competencies. But that didn’t stop Daewoo.

TO get access to more money to feed its growth, Daewoo issued corporate bonds.

Which were purchased by Investment Trust Companies (ITCs), finance companies

associated with chaebol. The ITCs purchased nearly $20 billion in corporate bonds.

In early 1999, Daewoo announced a plan to sell off some of its business to comply

with government restructuring requirements before the government took more

drastic action, such as nationalization. However, the plans limped along until July

1999. At that point, with Korea still in deep recession, Daewoo announced that it

would go bankrupt unless its Korean creditors backed it off. It basically could not

even its service its interest payments of $500 million a month, let alone its principal.

The government immediately stepped in and froze Daewoo’s loans until November

1999. This shock rippled through Korea, because nobody thought a chaebol would

ever be allowed to collapse. That had never happened before, and the close ties

between government and business were such that is was never expected to happen.

The shock of Daewoo’s announcement negatively affected the corporate bond

market, and the ITCs came under pressure because of their huge exposure to

Daewoo. Negotiations in Korea involved 60 banks, some owned by the

government, others in the private sector. On September 16, 1999, Daewoo asked its

foreign creditors for a moratorium on interest payments until March 2000, so the

instability spread to the international markets.

Daewoo’s Future

By the nd of 1999, Daewoo’s President Kim was left with few options to solve

Daewoo’s problems. One possibility was to dismantle Daewoo and let it have only

auto related businesses. All of the other businesses would be sold off to domestic or

foreign investors, and the name would be changed to something other than

Daewoo. Another option for President Kim was to sell some of Daewoo’s auto

assest. Ford, DaimlerChrysler and

General Motors showed interest, but selling Daewoo Motor, the second largest

automaker

in Korea, would be a big blow to the country.

As the Korean economy began to recover in 1999, some felt that the chaebol should

weather the storm and not allow themselves to be broken up. However, President

Kim Dae Jung had mandated that the chaebol get their debt-to-equity ratios from 5

to 1 to 2 to1 by the end of 1999, and that goal seemed impossible un less there was a

huge infusion of equity capital or either a write off of debt through debt

restructuring with the banks or selling off of debt-laden business to others. Under

immense pressure caused by the debt and by accusations of fraud and

embezzlement, President Kim Woo-Choong abandoned his company and fled the

country. The government separated the Daewoo subsidiaries and worked with

creditors to convert the debt into equity, to set up subsidiaries on debt workout

programs and to look for buyers.

After a year of negotiations, General Motors purchased a portion of the $1.2 billion

Daewoo Motors in April 2002for $400 million. It agreed to keep only three

manufacturing plants- two in Korea and one in Vietnam- leaving creditors

scrambling to sell its other plants in Eastern Europe, Asia and the Middle east. By

mid-2202, the Korean economy was showing promising signs of recovery and

reform. In 2001, the economy grew by 3 percent and was expected to grow by 5 to

6 percent in 2002. The government has done away with debt-based management of

the large chaebol and is working to dissolve the large conglomerates to better

compete internationally. Of the top 30 chaebol that existed prior to the economic

crisis only 14 remain.

The improving economy helped General Motors make its decision to purchase

Daewoo Motor, but GM is faced with new decision : How to market Daewoo cars

and reduce the $830 million of Daewoo debt. Should GM continue selling Daewoo

cars in the United States and Europe and and compete with its own brands?

Without increasing its debt, will it be able to restore 37% share of the market in

Korea?

Questions

1. What are the key mistakes Kim Woo-Choong made in formulating and

implementing Daewoo’s strategy and how did the economic crisis in Korea

and in rest of Asia affect that strategy?

2. How would you describe Korea’s economic system before its economy was

affected by the Asian Financial crisis? What was the role of IMF in reforming

the economic system in Korea?

Assignment - C

1. Which one of the following is not an assumption of the Ricardo Model :

a) Constant returns to scale

b) Factors of production can be transferred easily one sector to another

c) There is perfect competition in the market

d) Technological innovation is a unique feature of the market structure

2. Which of the following is not a form of Non Tariff Barrier

a) Subsidies

b) Local Content Requirement

c) Ad valorem Duties

d) Technical Standards

3. Which of the following is not an underlying principle of GATT?

a) Trade concessions by member countries will be reciprocated

b) Countries should grant preferential treatment to other member countries

c) Trade dispute between member countries to be settled by dispute

settlement mechanism of GATT

d) Policies governing external trade should be transparent

4. Which of the following is not an example of Quantitative Restriction on trade?

a) Quotas

b) Voluntary Export Restraint

c) Embargo

d) Subsidies

5. India is an example of which type of Economic System

a) Mixed Economy

b) Command Economy

c) Market Economy

d) Centrally Planned Economy

6. In a command economy or centrally planned economy

a) Government owns and controls all resources

b) Society owns and controls all resources

c) Community owns and controls all resources

d) Private entities owns and controls all resources

7. Which of the following economic indicator is used to rank countries in terms of

their individual wealth by World Bank?

a) GDP per capita

b) GNI per capita

c) PPP

d) GNI

8. Dumping which is a type of non tariff barriers means

a) Selling products at less than fair value

b) Selling goods that are mass produced in an economy

c) Selling goods utilizing old technology

d) Selling goods of inferior quality

9. In which type of trade agreement no duties are charged on imports from member

countries

a) Preferential Trade Agreement

b) Free Trade Agreement

c) Custom Union

d) None of the above

10. Which of the following was not an achievement of the Uruguay Round of

negotiations?

a) Agreement on services

b) Protection of Intellectual property rights

c) 10 year phase out of MFA

d) Agreement on Trade in Agriculture

11. WTO was formed during which round of negotiations ?

a) Uruguay Round

b) Doha Round

c) Singapore Round

d) Tokyo Round

12. How inflation and Exchange rate are related to each other?

a) Higher inflation leads to currency devaluations

b) Higher inflation leads to currency appreciation

c) High inflation leads to currency stability

d) There is no relation between inflation and exchange rate

13. External Debt is measured as

a) Total External Debt of a country

b) Debt as percentage of GDP

c) Total of Fiscal deficit and External borrowings

d) Both i and ii above

14. What is a convertible currency?

a) Currency that can be freely traded with other currencies

b) Currency that can be traded only with hard currencies

c) Currencies of the Asian Countries

d) Currencies of the developed countries

15. Currency Speculation is done to

a) Cover risk and earn profit

b) Cover risk

c) Maintain foreign currency account to earn interest

d) None of the above

16. ICICI and Prudential joined together to market Insurance products in India.

This strategy is

a) a) exporting

b) b) licensing

c) c) joint venture

d) d) assembly operations

17. To sell to their subsidiaries in countries with lower corporate tax rates than

that in the United States, American firms should make their transfer prices

a) a) low

b) b) high

c) c) moderate

d) d) no change

18. Which of the following is not a driver of globalization?

a) The fragmentation of consumer tastes between countries.

b) The competitive process

c) Multinational companies successfully persuading governments to lower

trading barriers.

d) The need to gain economies of scale.

19. Hofstede argues that:

a) International firms can easily transfer their ways of working from one

country to another.

b) Business does not need to take into account the norms and values of the

countries where they operate.

c) Each country has a single culture.

d) National culture is more influential than organizational culture.

20. Several governments have reduced taxes on companies. Select one of the

reasons below that help explain why governments are doing this.

a) To cut company production costs

b) To reduce government borrowing.

c) To reduce the budget deficit

d) To retain and attract investment by multinational companies.

21. Why might arbitration be an attractive option for settling disputes in

international trade and investment cases?

a) It is more costly than going through national courts.

b) The decisions of the arbitrator can be widely enforced.

c) The proceedings are made public.

d) There is no right of appeal.

22. Acquiring and managing funds in the global market is the primary emphasis of

a) lawyers.

b) treasurers.

c) financial managers.

d) bankers.

e) accountants.

23. A strategy of ______ pricing involves using price as a competitive weapon in

order to push competitors out of a national market.

a) premium

b) predatory

c) incremental

d) psychological

24. Implementing a global standardized advertising programme has the following

advantage(s) to a firm internationalizing:

a) lower costs.

b) economic advantages.

c) creative talent can be more readily and efficiently tapped.

d) all of the above.

25. Countries in which the retail systems are fragmented tend to have:

a) longer distribution channels.

b) few suppliers.

c) less customers.

d) no cartels.

26. ______ has been a pioneer in the hypermarket retailing concept.

a) Virgin Megastores

b) Carrefour

c) Wal-Mart

d) Body Shop

27. What is the main benefit of acquisitions over other hierarchical entry modes?

a) Cheaper entry.

b) No corporate tax.

c) Rapid entry.

d) None of the above.

28. The term 'royalties' is closely associated with:

a) contract manufacturing.

b) piggybacking.

c) licensing.

d) direct exporting

29. The German rules for bookkeeping are said to be ‘conservative’. This means

that the German rules are:

a) dating back to the 19th century

b) understating the value of assets and income

c) have been introduced by a right-wing government

d) overvaluing their assets

30. US rules on bookkeeping require a larger degree of disclosure than the German

system. The reason for this difference is:

a) The Enron bookkeeping fraud in the US

b) The higher level of globalisation of the US economy

c) The high level of equity financed by share holders in the US

d) The higher level of equity is financed by the banks

31. The sum of all goods and services produced in a country during a year is called

a) real income.

b) gross domestic product.

c) real gross national product.

d) balance of trade.

e) gross international product.

32. Which of the following is not a part of strategic management?

a) Environmental Analysis

b) Evaluation and control

c) Capital budgeting

d) PEST analysis

33. Which of the following is not a type of departmentalization?

a) functional

b) product

c) geographical

d) hierarchy

34. Businesses tend to be more ____ when the decisions to be made are risky.

a) decentralized

b) productive

c) informal

d) line-and-staff oriented

e) centralized

35. An organization's shared values, beliefs, traditions, philosophies, rules, and

heroes represent its

a) organizational culture.

b) grapevine.

c) organizational manual.

d) formal organization.

e) information organization

36. In Porter's Diamond it is argued that a nation will not be competitive when:

a) National firms have to face much domestic competition.

b) Domestic customers are very sophisticated.

c) Firms in the supply chain are themselves internationally competitive.

d) There is a shortage of 'advanced factors'.

37. This export strategy involves selling a product from a home base, usually

without any product modification.

a) exporting

b) licensing

c) joint venture

d) manufacturing

38. This entry strategy involves granting permits to a foreign company to use

industry property, technical knowhow, or engineering design in a foreign market.

a) exporting

b) licensing

c) joint venture

d) manufacturing

39. This international organization wants to achieve a broad, multilateral, and free

worldwide system of trading.

a) WTO

b) GSP

c) UNCTAD

d) MFN

40. "Noise" does not affect this stage of the communication process.

a) sender

b) encoding

c) decoding

d) receiver

e) all of them can be affected

Posted 2nd September 2011 by educare4u