1.

DESCRIBE THE IMPORTANCE OF BUSINESS ENVIRONMENT FOR THE BUSINESS FIRM.

An analysis of business environment helps to identify strength, weakness, opportunities & threats. Analysis is very necessary for the survival and growth of the business enterprise. The importance of business environment is briefly explained in an analysis below. (1) Identification of Strength: The analysis of the internal environment helps to identify strength of the firm. For instance, if the company has good personal policies in respect of promotion, transfer, training, etc than it can indicates strength of the firm in respect of personal policies. This strength can be identified through the job satisfaction and performance of the employees. After identifying the strengths the firm must try to consolidate its strengths by further improvement in its existing plans & policies. (2) Identification of Weakness: The analysis of the internal environment indicates not only strengths but also the weakness of the firm. A firm may be strong in certain areas; where as it may be weak in some other areas. The firm should identify sue weakness so as to correct them as early as possible. (3) Identification of Opportunities: An analysis of the external environment helps the business firm to identify the opportunities in the market. The business firm should make every possible effort to grab the opportunities as and when they come. (4) Identification of Threats: Business may be subject to threats from competitors and others. Therefore environmental analysis helps to identify threats from the environment identification of threats at an earlier date is always beneficial to the firm as it helps to defuse the same. (5) Exploitation of Business Opportunities: Environment opens new opportunities for the expansion of business activities. Study of environment is necessary in order to discover and exploit such opportunities fully. (6) Keeping Business Enterprise Alert: Environment study is needed as it keeps the business unit alert in its approach and activities. In the absence of environmental changes, the business activities will be dull and lifeless. The problems & prospects of business can be understood properly through the study of business environment. This enables an enterprise to face the problems with confidence and secure the maximum benefits of business opportunities available. (7) Keeping Business Flexible and Dynamic: Study of business environment is needed for keeping business flexible and dynamic as per the changes in the environmental forces. This will enable the development of business organization. (8) Understanding Future Problems and Prospects: The study of business environment enables to understand future problems and prospects of business in advance. This enables business organizations to face the problems boldly and also take the benefit of favorable situation. (9)Making Business Socially Acceptable: Environment study enables businessmen to expand the business and also make it acceptable to different social groups. Business organizations

can make positive contribution for maintaining ecological balance by studying social environment. (10) Ensures Optimum Utilization of Resources: The study of business environment is needed as it ensures optimum use of resources available. For this, the study of economic and technological environment is useful. Such study enables organization to take full benefit of government policies, concessions provided, and technological developments and so on. (11) Ensures Survival and Growth: Business environment inform about suitable changes to be affected in business policies. This helps the business organizations to grow & prosper. (12) Maintaining adaptability to changes: Business environment guides the business organization about socio-economic changes & the organization must accordingly adapt these change. This enables the business organization to survive for a longer period

Q 2) NON ECONOMIC ENVIRONMENT OF BUSINESS FIRM (ANY TWO) NON-ECONOMIC ENVIRONMENT The various elements of non-economic environment are as follow: (a) Social Environment:The social environment of business includes social factors like customs,traditions, values,beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that a society cherishes have a considerable influence on the functioning of business firms. For example, during festive seasons there is an increase in the demand for new clothes, sweets,fruits, flower, etc. Due to increase in literacy rate the consumers are becoming more conscious of the quality of the products. Due to change in family composition, more nuclear families with single child concepts have come up. This increases the demand for the different types of household goods. It may be noted that the consumption patterns, the dressing and living styles of people belonging to different social structures and culture vary significantly. (b) Political Environment:This includes the political system, the government policies and attitude towards the business community and the unionism. All these aspects have a bearing on the strategies adopted by the business firms. The stability of the government also influences business and related activities to a great extent. It sends a signal of strength, confidence to various interest groups and investors. Further, ideology of the political party also influences the business organization and its operations. You may be aware that Coca-Cola, a cold drink widely used even now, had to wind up operations in India in late seventies. Again the trade union activities also influence the operation of business enterprises. Most of the labour unions in India are affiliated to various political parties. Strikes, lockouts and labour disputes etc. also adversely affect the business operations. However, with the competitive business

environment, trade unions are now showing great maturity and started contributing positively to the success of the business organization and its operations through workers participation in management. (d) Technological Environment:Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. The varying technological environments of different countries affect the designing of products. For example, in USA and many other countries electrical appliances are designed for 110 volts. But when these are made for India, they have to be of 220 volts. In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time. It may be noted that scientific research for improvement and innovation in products and services is a regular activity in most of the big industrial organisations. Now a days infact, no firm can afford to persist with the outdated technologies. (e) Demographic Environment:This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services. For example a country where population rate is high and children constitute a large section of population, then there is more demand for baby products. Similarly the demand of the people of cities and towns are different than the people of rural areas. The high rise of population indicates the easy availability of labour. These encourage the business enterprises to use labour intensive techniques of production. Moreover, availability of skill labour in certain areas motivates the firms to set up their units in such area. For example, the business units from America, Canada, Australia, Germany, UK, are coming to India due to easy availability of skilled manpower. Thus, a firm that keeps a watch on the changes on the demographic front and reads them accurately will find opportunities knocking at its doorsteps. (f) Natural Environment:The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, etc. Business is greatly influenced by the nature of natural environment. For example, sugar factories are set up only at those places where sugarcane can be grown. It is always considered better to establish manufacturing unit near the sources of input. Further, governments policies to maintain ecological balance, conservation of natural resources etc. put additional responsibility on the business sector.

Q 3) ECONOMIC ENVIRONMENT OF BUSINESS

Economic Environment Macroeconomics is concerned primarily with the forecasting of national income, through the analysis of major economic factors that show predictable patterns and trends, and of their influence on one another. These factors include level of employment/unemployment, gross national product (GNP), balance of payments position, and prices (deflation or inflation). Macroeconomics also covers role of fiscal and monetary policies policies, economic growth growth, and determination of consumption and investment levels. There are two areas of research that are emblematic of the discipline: The attempt to understand the causes and consequences of short run fluctuations in national income (the business cycle cycle) the fluctuations of economic activity. The cycle involves shifts over time between periods of relatively rapid growth of output (recovery and prosperity), and periods of relative stagnation or decline (contraction or recession) and the attempt to understand the determinants of long run economic growth (increases in national income). Macroeconomic models and their forecasts are used by both governments and large corporations to assist in the development and evaluation of economic policy and business strategy. Macroeconomic Policies In order to try to avoid major economic shocks, such as great depression, governments make adjustments through policy changes which they hope will succeed in stabilizing the economy. Governments believe that the success of these adjustments is necessary to maintain stability and continue growth. This economic management is achieved through two types of strategies. Fiscal Policy Government's revenue (taxation) and spending policy designed to (1) counter economic cycles in order to achieve lower unemployment (2) achieve low or no inflation, and (3) achieve sustained but controllable economic growth. In a recession, governments stimulate the economy with deficit spending (expenditure exceeds revenue). During period of expansion, they restrain a fast-growing economy with higher taxes and aim for a surplus (revenue exceeds expenditure). Fiscal policies are based on the concepts of the UK economist John Maynard Keynes (1883-1946), and work independent of monetary policy which tries to achieve the same objectives by controlling the money supply. Fiscal policy is described as being neutral, expansionary, or contractionary. An expansionary fiscal policy occurs when the government lowers taxes and/or increases spending; thus expanding output (national income). An increase in government spending or a cut in taxes shifts the aggregate demand curve to the right. An expansionary fiscal policy will expand the economy's growth. A contractionary fiscal policy occurs when the government raises taxes and/or lowers spending; thus lowering output (national income). A

decrease in government purchases or an increase in taxes shifts the aggregate demand curve to the left. A contractionary fiscal policy will constrict the economy's overall growth. Next Page Monetary Policy Economic strategy chosen by a government in deciding expansion or contraction in the country's money money-supply supply. Applied usually through the central bank, a monetary policy employs three major tools: (1) buying or selling national debt, (2) changing credit restrictions, and (3) changing the interest rates by changing reserve requirements. Monetary policy plays the dominant role in control of the aggregate demand and, by extension, of inflation in an economy. Also called monetary regime. Monetary policy is generally referred to as either being an expansionary policy, or a contractionary policy, where an expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy has the goal of raising interest rates to combat inflation (or cool an otherwise overheated economy). Monetary policy should be contrasted with fiscal policy, which refers to government borrowing, spending and taxation. Monetary policy rests on the relationship between the rates of interest in an economy, that is the price at which money can be borrowed, and the total supply of money. Monetary policy uses a variety of tools to control one or both of these, to influence outcomes like economic growth, inflation, exchange rates with other currencies and unemployment. Where currency is under a monopoly of issuance, or where there is a regulated system of issuing currency through banks which are tied to a central bank, the monetary authority has the ability to alter the money supply and thus influence the interest rate (in order to achieve policy goals). A policy is referred to as contractionary if it reduces the size of the money supply or raises the interest rate. An expansionary policy increases the size of the money supply, or decreases the interest rate. Further monetary policies are described as accommodative if the interest rate set by the central monetary authority is intended to spur economic growth, neutral if it is intended to neither spur growth nor combat inflation, or tight if intended to reduce inflation. There are several monetary policy tools available to achieve these ends. Within almost all modern nations, special institutions (such as the Bank of England, the European Central Bank or the Federal Reserve System in the United States) exist which have the task of executing the monetary policy independently of the executive. In general, these institutions are called central banks and often have other responsibilities such as supervising the smooth operation of the financial system. It must now take into account such diverse factors as:

I) short term interest rates; II) long term interest rates; III) velocity of money through the economy; Q5 )FEATURES OF BUSINESS ENVIRONMENT On the basis of the above discussion the features of business environment can be summarized as follows. (a) Business environment is the sum total of all factors external to the business firm and that greatly influence their functioning. (b) It covers factors and forces like customers, competitors, suppliers, government, and the social, cultural, political, technological and legal conditions. (c) The business environment is dynamic in nature, that means, it keeps on changing. (d) The changes in business environment are unpredictable. It is very difficult to predict the exact nature of future happenings and the changes in economic and social environment. (e) Business Environment differs from place to place, region to region and country to country. Political conditions in India differ from those in Pakistan. Taste and values cherished by people in India and China vary considerably Q6 ) Mention in brief the different types of business environment. Business Environment Environment refers to all external forces, which have a bearing on the functioning of business. Environment factors are largely if not totally, external and beyond the control of individual industrial enterprises and their managements. The business environment poses threats to a firm or offers immense opportunities for potential market exploitation. Environmental business solutions will give way to the environmental business opportunities. Types of Business Environment Environment includes such factors as socio-economic, technological, supplier, competitor and the government. There are two more factors, which exercise considerable influence on business. They are physical or natural environment and global environment. Technological Environment Technology is understood as the systematic application of scientific or other organized

knowledge to practical tasks. Technology changes fast and to keep pace with it, businessmen should be ever alert to adopt changed technology in their businesses. Economic Environment There is close relationship between business and its economic environment. Business obtains all its needed inputs from the economic environment and it absorbs the output of business units. Political Environment It refers to the influence exerted by the three political institutions viz., legislature executive and the judiciary in shaping, directing, developing and controlling business activities. A stable and dynamic political environment is indispensable for business growth. Natural Environment Business, an economic pursuit of man, continues to be dictated by nature. To what extend business depends on nature and what is the relationship between the two constitutes an interesting study. Global or international Environment Thanks to liberalization, Indian companies are forces to view business issues from a global perspective. Business responses and managerial practices must be fine-tuned to survive in the global environment. Social and culture Environment It refers to peoples attitude to work and wealth; role of family, marriage, religion and education; ethical issues and social responsiveness of business.
Q 8) Bring out the important features of the Indian economy.
(a) Indian economy is basically an agricultural economy. More than 60% of the population is engaged in agriculture and allied activities. (b) Low per capita income is the second feature of Indian economy. It is one of the lowest in the world. (c) The occupational structure has not been changed during the last 100 years. In 1950-51 about 73% of the workers were engaged in primary activities, 11% in secondary and 16% in tertiary activities. In 1999-2000 the share of different sectors in employment amounted to 60%, 17% and 23% respectively. (d) Inequality of income and wealth is other important feature of Indian economy. In India the main resources are concentrated in the hands of the few people. 40% of the total assets is concentrated in the hands of top 20 percent people. (e) There has been remarkable improvement in social sectors such as education, health, housing, water supply, civic amenities etc. (f) Planning process is also an important feature. As the government has adopted planned developmental economy. Five years plans are framed for economic development.

(i) Indias per capita income is one of the lowest in the world. Per capita income of Switzerland is 83 times, or Japan and U.S.A. is 74 times than the per capita income of India. (ii) India is predominantly based on agricultural economy where more than 60 percent of the working population is engaged in agriculture and allied activities. Its share in national income is 26.5%. (iii) The role of tertiary sector is significant in the economy. Presently, its share in national income is 48.5 percent which is the largest. (iv) Indian economy is a mixed economy where private and public sectors co-exist side by side. But since 1991, our government has a shift in its policy in favour of the private sector. (v) In India, majority of the population (72.2 % in 2001) lives in villages, 65.38 % of the total population of India is literate and the rest 34.62 percent remains illiterate. (vi) Quality of life is very poor. (vii) We are faced with the problems of unemployment and poverty. (viii) Techniques of production used in India are quite backward and outdated. 9. DISTINGUISH BETWEEN GROWTH AND DEVELOPMENT.

Growth and development are similar words but different from each other though it is not possible to separate them totally. It is a whole process which includes growth of the body as well as growth of various aspects of child's personality, e.g., the physical, emotional, social and cognitive development. Development is a progressive change the child undergoes which increases the physical, social, mental and emotional capacities of the child. In the early stages of life these changes are constructive and after middle age there are destructive changes in the body which lead to old age. Growth 1. Growth is quantitative. 2. Growth comprises of height, weight, size and shape of body organs like brain, etc. 3. It is due to cell division. 4. Growth is for limited period.

5. Growth can be measured. 6. Growth tells about one aspect of personality but in limited scope. Development 1. Development is quantitative as well as qualitative. 2. In this with the physical changes cognitive social and emotional change are also included. 3. It happen due to motor and adjust mental processes and their interplay. 4. Development takes place till death. 5. It can be observed by matured behavior. 6. Development deals with all the aspect of personality and has a vast scope. 10. DISCUSS IN SHORT THE METHOD OF CALCULATING INDIA GDP. Calculating GDP is extremely important has the performance of the economy is fixed by means of this method. The results would help the country to forecast the economic progress, determine the demand and supply, understand the buying power of the people, the per capita income, the position of the economy in the global arena. The Indian GDP is calculated by the expenditure method. By Calculating GDP the performance of the Indian economy can be determined. The GDP of the country states the number of goods and services produced in a financial year. It is the yardstick of measuring the functioning of the economy. Indian Economy-Facts on India GDP

The Indian economy is the 12th largest in the world It ranks 5th pertaining to purchasing power parity (PPP) according to the latest calculation of the World Bank The GDP of India in the year 2007 was US $1.09 trillion India is the one of the most rapidly growing economies in the world The growth rate of the India GDP was 9.4% per year Due to the huge population the per capita income in India is $964 at nominal and $4,182 at PPP

Points to remember while calculating GDP

Calculating India GDP has to be done cautiously pertaining to the diversity of the Indian Economy. There are different sectors contributing to the GDP in India such as agriculture, textile, manufacturing, information technology, telecommunication, petroleum, etc. The different sectors contributing to the India GDP are classified into three segments, such as primary or agriculture sector, secondary sector or manufacturing sector, and tertiary or service sector.

With the introduction of the digital era, Indian economy has huge scopes in the future to become one of the leading economies in the world. India has become one of the most favored destinations for outsourcing activities. India at present is one of the biggest exporter of highly skilled labor to different countries The new sectors such as pharmaceuticals, nanotechnology, biotechnology, telecommunication, aviation, manufacturing, shipbuilding, and tourism would experience very high rate of growth

How to calculate GDPThe method of Calculating India GDP is the expenditure method, which is, GDP = consumption + investment + (government spending) + (exports-imports) and the formula is GDP = C + I + G + (X-M) Where,

C stands for consumption which includes personal expenditures pertaining to food, households, medical expenses, rent, etc I stands for business investment as capital which includes construction of a new mine, purchase of machinery and equipment for a factory, purchase of software, expenditure on new houses, buying goods and services but investments on financial products is not included as it falls under savings G stands for the total government expenditures on final goods and services which includes investment expenditure by the government, purchase of weapons for the military, and salaries of public servants X stands for gross exports which includes all goods and services produced for overseas consumption M stands for gross imports which includes any goods or services imported for consumption and it should be deducted to prevent from calculating foreign supply as domestic supply.

Q 12 . Short note on INFLATION In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.[1] When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money a loss of real value in the internal medium of exchange and unit of account in the economy.[2][3] A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.[4] Inflation's effects on an economy are various and can be simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and other monetary items over time, uncertainty over future inflation may discourage investment and savings, and high inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will

increase in the future. Positive effects include ensuring central banks can adjust nominal interest rates (intended to mitigaterecessions),[5] and encouraging investment in nonmonetary capital projects. Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply.[6] Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.[7][8] Today, most economists favor a low, steady rate of inflation.[9] Low (as opposed to zero or negative) inflation reduces the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy.[10] The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control monetary policythrough the setting of interest rates, through open market operations, and through the setting of bankingreserve requirements.

UEMPLOYEMENT Unemployment (or joblessness), as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks.[1] The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force. In a 2011 news story, BusinessWeek reported, "More than 2000 million people globally are out of work, a record high, as almost twothirds of advanced economies and half of developing countries are experiencing a slowdown in employment growth, the group said."[2] There remains considerable theoretical debate regarding the causes, consequences and solutions for unemployment. Classical economics, neoclassical economics and the Austrian School of economics argue that market mechanisms are reliable means of resolving unemployment.[citation needed] These theories argue against interventions imposed on the labour market from the outside, such as unionization, minimum wage laws, taxes, and other regulations that they claim discourage the hiring of workers. Keynesian economics emphasizes the cyclical nature of unemployment and recommends interventions it claims will reduce unemployment during recessions. This theory focuses on recurrent supply shocks that suddenly reduce aggregate demand for goods and services and thus reduce demand for workers. Keynesian models recommend government interventions designed to increase demand for workers; these can include financial stimuli, publicly funded job creation, and expansionist monetary policies. Georgists, half a century before Keynes, also noted the cyclical nature but focused on the role of speculation in land which pushes up economic rent. Economic activity cannot be sustained in the rent bubble because rent must

be paid mostly from wages (yield of labor) as well as from interest (yield of capital). Once the speculation is wrung out of system the cycle of land speculation begins again.[3] Henry George therefore advocated the taxation of land values (Single Tax) to stop land speculation and in order to eliminate taxation of labor and capital. George opposed land nationalization and Marx's theories. Marxism focuses on the relations between the owners and the workers, whom, it claims, the owners pit against one another in a constant struggle for jobs and higher wages. The unemployment produced by this struggle is said to benefit the system by reducing wage costs for the owners. For Marxists the causes of and solutions to unemployment require abolishing capitalism and shifting to socialism or communism. In addition to these three comprehensive theories of unemployment, there are a few categorizations of unemployment that are used to more precisely model the effects of unemployment within the economic system. The main types of unemployment include structural unemployment which focuses on structural problems in the economy and inefficiencies inherent in labour markets including a mismatch between the supply and demand of laborers with necessary skill sets. Structural arguments emphasize causes and solutions related to disruptive technologies and globalization. Discussions of frictional unemployment focus on voluntary decisions to work based on each individuals' valuation of their own work and how that compares to current wage rates plus the time and effort required to find a job. Causes and solutions for frictional unemployment often address barriers to entry and wage rates. Behavioral economists highlight individual biases in decision making and often involve problems and solutions concerning sticky wages and efficiency wages. LABOUR MARKET In the past, the most common definition of labour market flexibility was the neoliberal definition. This entailed the ease of labour market institutions in enabling labour markets to reach a continuous equilibrium determined by the intersection of the demand and supply curve.[1] In the words of Siebert [2] labour market institutions were seen to inhibit "the clearing functions of the market by weakening the demand for labor, making it less attractive to hire a worker by explicitly pushing up the wage costs or by introducing a negative shadow price for labor; by distorting the labor supply; and by impairing the equilibrating function of the market mechanism (for instance, by influencing bargaining behavior). Theory The most famous distinction of labour market flexibility is given by Atkinson.[4] Based on the strategies companies use, he notes that there can be four types of flexibility. Types of labour market

External numerical flexibility External numerical flexibility refers to the adjustment of the labour intake, or the number of workers from the external market. This can be achieved by employing workers on temporary work or fixed-term contracts or through relaxed hiring and firing regulations or in other words relaxation of Employment Protection Legislation, where employers can hire and fire permanent employees according to the firms needs. Internal numerical flexibility Internal numerical flexibility, sometimes known as working time flexibility or temporal flexibility. This flexibility achieved by adjustingworking hours or schedules of workers already employed within the firm. This includes part-time, flexi time or flexible working hours/ shifts(including night shifts and weekend shifts), working time accounts, leaves such as parental leave, overtime. Functional flexibility Functional flexibility or organizational flexibility is the extent employees can be transferred to different activities and tasks within the firm. It has to do with organization of operation or management and training workers. This can also be achieved by outsourcing activities. Job rotation is a label given to many functional flexibiltiy schemes - see Coyne 2011 and wikipedia pages. Financial or wage flexibility Financial or wage flexibility is in which wage levels are not decided collectively and there are more differences between the wages of workers. This is done so that pay and other employment cost reflect the supply and demand of labour. This can be achieved by rate-for-the-job systems, or assessment based pay system, or individual performance wages. Other than the 4 types of flexibility there are other types of flexibility that can be used to enhance adaptability. One way worth mentioning is locational flexibility or flexibility of place.[5] This entails employees working outside of the normal work place such as home based work, outworkers or teleworkers. This can also cover workers who are relocated to other offices within the establishment.

INTERNATIONAL MONETARY FUND The International Monetary Fund (IMF) is an international organization that was conceived on July 22, 1944 originally with 45 members and came into existence on December 27, 1945 when 29 countries signed the agreement,[1] with a goal to stabilize exchange rates and assist the reconstruction of the worlds international payment system. Countries contributed to a pool which could be borrowed from, on a temporary basis, by countries with payment imbalances. The IMF works to improve the economies of its member countries.[2] The IMF describes itself as an organization of 187 countries (as of July 2010), working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty. The organization's stated objectives are to promote international economic cooperation, international trade, employment, and exchange rate stability, including by making resources available to member countries to meet balance of payments needs.[3] Its headquarters are in Washington, D.C..

WORLD BANK The World Bank is an international financial institution that provides loans[2] to developing countries for capital programs. The World Bank's official goal is the reduction of poverty. According to the World Bank's Articles of Agreement (As amended effective 16 February 1989) all of its decisions must be guided by a commitment to promote foreign investment, international trade and facilitate capitalinvestment.[3] The World Bank differs from the World Bank Group, in that the World Bank comprises only two institutions: the International Bank for Reconstruction and Development (IBRD) and theInternational Development Association (IDA), whereas the latter incorporates these two in addition to three more:[4] International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA), and International Centre for Settlement of Investment Disputes(ICSID). BALANCE OF TRADE The balance of trade (or net exports, sometimes symbolized asNX) is the difference between the monetary value of exports andimports of output in an economy over a certain period. It is the relationship between a nation's imports and exports.[1][dead link] A positive balance is known as a trade surplus if it consists of exporting more than is imported; a negative balance is referred to as a trade deficit or, informally, a trade gap. The balance of trade is sometimes divided into a goods and a services balance. Early understanding of the functioning of balance of trade informed the economic policies of Early Modern Europe that are grouped under the heading mercantilism. An early statement appeared inDiscourse of the Common Wealth of this Realm of England, 1549: "We must always take heed that we buy no more from strangers than we sell them, for so should we impoverish ourselves and enrich them."[2] Similarly a systematic and coherent explanation of balance of trade was made public through Thomas Mun's c1630 "England's treasure by forraign trade, or, The balance of our forraign trade is the rule of our treasure"[3] Definition The balance of trade encompasses the activity of exports and imports, like the work of this cargo ship going through the Panama Canal. The balance of trade forms part of the current account, which includes other transactions such as income from the international investment position as well as international aid. If the current account is in surplus, the country's net international asset position increases correspondingly. Equally, a deficit decreases the net international asset position. The trade balance is identical to the difference between a country's output and its domestic demand (the difference between what goods a country produces and how many goods it buys from abroad; this does not include money re-spent on foreign stock, nor does it factor in the concept of importing goods to produce for the domestic market). Measuring the balance of trade can be problematic because of problems with recording and collecting data. As an illustration of this problem, when official data for all the world's

countries are added up, exports exceed imports by almost 1%; it appears the world is running a positive balance of trade with itself. This cannot be true, because all transactions involve an equal credit or debit in the account of each nation. The discrepancy is widely believed to be explained by transactions intended to launder money or evade taxes, smuggling and other visibility problems. However, especially for developed countries, accuracy is likely. Factors that can affect the balance of trade include:

The cost of production (land, labor, capital, taxes, incentives, etc.) in the exporting economy vis--vis those in the importing economy; The cost and availability of raw materials, intermediate goods and other inputs; Exchange rate movements; Multilateral, bilateral and unilateral taxes or restrictions on trade; Non-tariff barriers such as environmental, health or safety standards; The availability of adequate foreign exchange with which to pay for imports; and Prices of goods manufactured at home (influenced by the responsiveness of supply)

BALANCE OF PAYMENT Balance of payments (BoP) accounts are an accounting record of all monetary transactions between a country and the rest of the world.[1]These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers. The BoP accounts summarize international transactions for a specific period, usually a year, and are prepared in a single currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as negative or deficit items. When all components of the BOP accounts are included they must sum to zero with no overall surplus or deficit. For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counter-balanced in other ways such as by funds earned from its foreign investments, by running down central bank reserves or by receiving loans from other countries. While the overall BOP accounts will always balance when all types of payments are included, imbalances are possible on individual elements of the BOP, such as the current account, the capital account excluding the central bank's reserve account, or the sum of the two. Imbalances in the latter sum can result in surplus countries accumulating wealth, while deficit nations become increasingly indebted. The term "balance of payments" often refers to this sum: a country's balance of payments is said to be in surplus (equivalently, the balance of payments is positive) by a certain amount if sources of funds (such as export goods sold and bonds sold) exceed uses of funds (such as paying for imported goods and paying for foreign bonds purchased) by that amount. There is said to be a balance of payments deficit (the balance of payments is said to be negative) if the former are less than the latter. Under a fixed exchange rate system, the central bank accommodates those flows by buying up any net inflow of funds into the country or by providing foreign currency funds to the foreign exchange market to match any international outflow of funds, thus preventing

the funds flows from affecting the exchange rate between the country's currency and other currencies. Then the net change per year in the central bank's foreign exchange reserves is sometimes called the balance of payments surplus or deficit. Alternatives to a fixed exchange rate system include a managed float where some changes of exchange rates are allowed, or at the other extreme a purely floating exchange rate (also known as a purely flexible exchange rate). With a pure float the central bank does not intervene at all to protect or devalue its currency, allowing the rate to be set by the market, and the central bank's foreign exchange reserves do not change. Historically there have been different approaches to the question of how or even whether to eliminate current account or trade imbalances. With record trade imbalances held up as one of the contributing factors to the financial crisis of 20072010, plans to address global imbalances have been high on the agenda of policy makers since 2009. Q 14 What are the types of unemployment? Seasonal. Below we will examine each type of unemployment to see how they differ. Structural Unemployment: The Glossary of Economics Terms defines structural unemployment as: "Structural unemployment is a unemployment that comes from there being an absence of demand for the workers that are available." There are two major reasons that cause an absence of demand for workers in a particular industry: 1. Changes in Technology: As personal computers replaced typewriters, typewriter factories shut down. Workers in typewriter factories because unemployed and had to find other industies to be employed in. 2. Changes in Tastes: If bagpipes become unpopular, bagpipe companies will go bankrupt and their workers will be unemployed. Frictional Unemployment: The Glossary of Economics Terms defines frictional unemployment as: "Frictional unemployment is unemployment that comes from people moving between jobs, careers, and locations." Sources of frictional unemployment include the following: 1. People entering the workforce from school. 2. People re-entering the workforce after raising children.

3. People changing unemployers due to quitting or being fired (for reasons beyond structural ones). 4. People changing careers due to changing interests. 5. People moving to a new city (for non-structural reasons) and being unemployed when they arrive. Cyclical Unemployment: The Glossary of Economics Terms defines cyclical unemployment as: "Cyclical unemployment occurs when the unemployment rate moves in the opposite direction as the GDP growth rate. So when GDP growth is small (or negative) unemployment is high." Getting laid off due to a recession is the classic case of cyclical unemployment. This is why the unemployment rate is a key economic indicator

15. WHAT ARE THE CAUSES OF INFLATION? Causes The Bank of England, central bank of theUnited Kingdom, monitors causes and attempts to control inflation. Historically, a great deal of economic literature was concerned with the question of what causes inflation and what effect it has. There were different schools of thought as to the causes of inflation. Most can be divided into two broad areas: quality theories of inflation and quantity theories of inflation. The quality theory of inflation rests on the expectation of a seller accepting currency to be able to exchange that currency at a later time for goods that are desirable as a buyer. The quantity theory of inflation rests on the quantity equation of money, that relates the money supply, itsvelocity, and the nominal value of exchanges. Adam Smith and David Hume proposed a quantity theory of inflation for money, and a quality theory of inflation for production.[citation needed] Currently, the quantity theory of money is widely accepted as an accurate model of inflation in the long run. Consequently, there is now broad agreement among economists that in the long run, the inflation rate is essentially dependent on the growth rate of money supply. However, in the short and medium term inflation may be affected by supply and demand pressures in the economy, and influenced by the relative elasticity of wages, prices and interest rates.[24] The question of whether the short-term effects last long enough to be important is the central topic of debate between monetarist and Keynesian economists. Inmonetarism prices and wages adjust quickly enough to make other factors merely marginal behavior on a general trend-line. In the Keynesianview, prices and wages adjust at different rates, and these differences have enough effects on real output to be "long term" in the view of people in an economy.

16.Write in short, Role of Government and RBI in Money market. Role of Government: To increase the constancy of Financial Institutions and Markets Government intervenes in the interest rates and money supply in the Money Markets. Government has several ways to control income and interest rates which can be divided into two broad groups such as, Fiscal policy Monetary policy The government to adjust the exchange rate intervenes with the foreign exchange markets; there may be a result on the financial base and the supply of money. When the currency is falling, foreign currencies should be sold and the currency should be bought to steady its price. The use of deposits of the national currency to do this suggest that the prepared deposits of the banking sector must be reduced, causing the financial base to fall, affecting the supply of money. Equally by selling the national currency to decrease its rate, the monetary base will increase. Securities may be sold on the open market in an effort to dampen the effects of inflows of the national currency, but this would imply a raise in interest rates and cause the currency to rise further still. A number of institutions can affect the supply of money but the greatest impact on the money supply is had by the Reserve bank and the commercial banks. Role of Central Bank (RBI): Firstly the central bank could do this by setting a necessary reserve ratio, which would restrict the ability of the commercial banks to increase the money supply by loaning out money. If this condition were above the ratio the commercial banks would have wished to have then the banks will have to create fewer deposits and make fewer loans then they could otherwise have profitably done. If the central bank imposed this requirement in order to reduce the money supply, the commercial banks will probably be unable to borrow from the central bank in order to increase their cash reserves if they wished to make further loans. They might try to attract further deposits from customers by raising their interest rates but the central bank may retaliate by increasing the necessary reserve ratio. The central bank can influence the supply of money through special deposits. These are deposits at the central bank which the banking sector is required to lodge. These are then frozen, thus preventing the sector from accessing them even though interest is paid at the average Treasury bill rate. Making these special deposits reduces the level of the commercial banks operational deposits which forces them to cut back on lending. The supply of money can also be prohibited by the central bank by adjusting its interest rate which it charges when the commercial banks wish to borrow money (the discount rate). Banks generally have a ratio of cash to deposits which they consider to be the minimum safe level. If command for cash is such that their reserves fall below this level they will able to borrow money from the central bank at its discount rate. If market rates were 8% and the discount rate were also 8%, then the banks might decrease theircash reserves to their minimum ratio knowing that if demand exceeds supply they will be able to borrow at 8%. The central bank, even if, may raise its discount rate to a value above the

market level, in order to encourage banks not to reduce their cash reserves to the minimum during excess loans. By raising the discount value to such a level, the commercial banks are given an incentive to hold more reserves thus reducing the money multiplier and the money supply. Another way the money supply can be affected by the central bank is through its operation of the interest rate. By raising or lowering interest rates the demand for money is respectively reduced or increased. If it sets them at a certain level it can clear the market at level by supplying sufficient money to match the demand. Alternatively it could fix the money supply at a convinced rate and let the market clear theinterest rates at the balance. Trying to fix the money supply is not easy so central banks regularly set the interest rate and provide the amount of money the market demands.

The central bank may also involve the money supply through operating on the open market. This allows it to influence the money supply through the financial base. It may choose to either buy or sell securities in the marketplace which will either inject or remove money respectively. Thus the monetary base will be affected causing the money supply to modify. 17. Describe in short structure, Characteristic and Drawback of Indian Money Market. Structure Structure of Indian Money Market (i)Broadly speaking, the money market in India comprises two sectors: (a) organised sector, and (b) unorganised sector. (ii)The organised sector consists of the Reserve Bank of India, the State Bank of India with its seven associates, twenty nationalised commercial banks, other scheduled and nonscheduled commercial banks, foreign banks, and Regional Rural Banks. It is called organised because its part is systematically coordinated by the RBI. (iii) Non-bank financial institutions such as the LIC, the GIC and subsidiaries, the UTI also operate in this market, but only indirectly through banks, and not directly. (iv) Quasi-government bodies and large companies also make their short-term surplus funds available to the organised market through banks. (v)Cooperative credit institutions occupy the intermediary position between organised and unorganised parts of the Indian money market. These institutions have a three-tier structure. At the top, there are state cooperative banks. At the local level, there are primary credit societies and urban cooperative banks. Considering the size, methods of operations, and dealings with the RBI and commercial banks, only state and central, cooperative banks should be included in the organised sector. The cooperative societies at the local level are loosely linked with it. (vi)The unorganized sector consists of indigenous banks and money lenders. It is unorganised because activities of its parts are not systematically coordinated by the RBI.

(vii)The money lenders operate throughout the country, but without any link among themselves. (viii)Indigenous banks are somewhat better organised because they enjoy rediscount facilities from the commercial banks which, in turn, have link with the RBI. But this type of organisation represents only a loose link with the RBI. CHARACTERISTICS The characteristics of the money market are: 1. 2. It is not a single market but a collection of markets for several instruments It is wholesale market of short term debt instruments

3. Its principal feature is honor where the creditworthiness of the participants is important. 4. The main players are: Reserve bank of India (RBI), Discount and Finance House of India (DFHI), mutual funds, banks, corporate investor, non-banking finance companies (NBFCs), state governments, provident funds, Primary dealers. Securities Trading Corporation of India (STCI), public sector undertaking (PSUs), non-resident Indians and overseas corporate bodies. 5. It is a need based market wherein the demand and supply of money shape the market. DRAWBACK Defects or Drawbacks of Indian Money Market Though the Indian money market is considered as the advanced money market among developing countries, it still suffers from many drawbacks or defects. These defects limit the efficiency of our market. Some of the important drawbacks of Indian Money Market are :Absence of Integration : The Indian money market is broadly divided into the Organized and Unorganized Sectors. The former comprises the legal financial institutions backed by the RBI. The unorganized statement of it includes various institutions such as indigenous bankers, village money lenders, traders, etc. There is lack of proper integration between these two segments. Multiple rate of interest : In the Indian money market, especially the banks, there exists too many rates of interests. These rates vary for lending, borrowing, government activities, etc. Many rates of interests create confusion among the investors. Insufficient Funds or Resources : The Indian economy with its seasonal structure faces frequent shortage of financial recourse. Lower income, lower savings, and lack of banking habits among people are some of the reasons for it.

Shortage of Investment Instruments : In the Indian money market, various investment instruments such as Treasury Bills, Commercial Bills, Certificate of Deposits, Commercial Papers, etc. are used. But taking into account the size of the population and market these instruments are inadequate. Shortage of Commercial Bill : In India, as many banks keep large funds for liquidity purpose, the use of the commercial bills is very limited. Similarly since a large number of transactions are preferred in the cash form the scope for commercial bills are limited. Lack of Organized Banking System : In India even through we have a big network of commercial banks, still the banking system suffers from major weaknesses such as the NPA, huge losses, poor efficiency. The absence of the organized banking system is major problem for Indian money market. Less number of Dealers : There are poor number of dealers in the short-term assets who can act as mediators between the government and the banking system. The less number of dealers leads tc the slow contact between the end lender and end borrowers. These are some of the major drawbacks of the Indian money market; many of these are also the features of our money market.

18. Explain in short structure and function of Commercial Bank. 7 main functions of a Commercial bank The main functions of commercial banks are accepting deposits from the public and advancing them loans. However, besides these functions there are many other functions which these banks perform. All these functions can be divided under the following heads: 1. Accepting deposits 2. Giving loans 3. Overdraft 4. Discounting of Bills of Exchange 5. Investment of Funds 6. Agency Functions 7. Miscellaneous Functions 1. Accepting Deposits:

The most important function of commercial banks is to accept deposits from the public. Various sections of society, according to their needs and economic condition, deposit their savings with the banks. For example, fixed and low income group people deposit their savings in small amounts from the points of view of security, income and saving promotion. On the other hand, traders and businessmen deposit their savings in the banks for the convenience of payment. Therefore, keeping the needs and interests of various sections of society, banks formulate various deposit schemes. Generally, there ire three types of deposits which are as follows: (i) Current Deposits: The depositors of such deposits can withdraw and deposit money whenever they desire. Since banks have to keep the deposited amount of such accounts in cash always, they carry either no interest or very low rate of interest. These deposits are called as Demand Deposits because these can be demanded or withdrawn by the depositors at any time they want. Such deposit accounts are highly useful for traders and big business firms because they have to make payments and accept payments many times in a day. (ii) Fixed Deposits: These are the deposits which are deposited for a definite period of time. This period is generally not less than one year and, therefore, these are called as long term deposits. These deposits cannot be withdrawn before the expiry of the stipulated time and, therefore, these are also called as time deposits. These deposits generally carry a higher rate of interest because banks can use these deposits for a definite time without having the fear of being withdrawn. (iii) Saving Deposits: In such deposits, money upto a certain limit can be deposited and withdrawn once or twice in a week. On such deposits, the rate of interest is very less. As is evident from the name of such deposits their main objective is to mobilise small savings in the form of deposits. These deposits are generally done by salaried people and the people who have fixed and less income. 2. Giving Loans: The second important function of commercial banks is to advance loans to its customers. Banks charge interest from the borrowers and this is the main source of their income. Banks advance loans not only on the basis of the deposits of the public rather they also advance loans on the basis of depositing the money in the accounts of borrowers. In other words, they create loans out of deposits and deposits out of loans. This is called as credit creation by commercial banks. Modern banks give mostly secured loans for productive purposes. In other words, at the time of advancing loans, they demand proper security or collateral. Generally, the value of

security or collateral is equal to the amount of loan. This is done mainly with a view to recover the loan money by selling the security in the event of non-refund of the loan. At limes, banks give loan on the basis of personal security also. Therefore, such loans are called as unsecured loan. Banks generally give following types of loans and advances: (i) Cash Credit: In this type of credit scheme, banks advance loans to its customers on the basis of bonds, inventories and other approved securities. Under this scheme, banks enter into an agreement with its customers to which money can be withdrawn many times during a year. Under this set up banks open accounts of their customers and deposit the loan money. With this type of loan, credit is created. (iii) Demand loans: These are such loans that can be recalled on demand by the banks. The entire loan amount is paid in lump sum by crediting it to the loan account of the borrower, and thus entire loan becomes chargeable to interest with immediate effect. (iv) Short-term loan: These loans may be given as personal loans, loans to finance working capital or as priority sector advances. These are made against some security and entire loan amount is transferred to the loan account of the borrower. 3. Over-Draft: Banks advance loans to its customers upto a certain amount through over-drafts, if there are no deposits in the current account. For this banks demand a security from the customers and charge very high rate of interest. 4. Discounting of Bills of Exchange: This is the most prevalent and important method of advancing loans to the traders for short-term purposes. Under this system, banks advance loans to the traders and business firms by discounting their bills. In this way, businessmen get loans on the basis of their bills of exchange before the time of their maturity. 5. Investment of Funds: The banks invest their surplus funds in three types of securitiesGovernment securities, other approved securities and other securities. Government securities include both, central and state governments, such as treasury bills, national savings certificate etc. Other securities include securities of state associated bodies like electricity boards, housing boards, debentures of Land Development Banks units of UTI, shares of Regional Rural banks etc. 6. Agency Functions:

Banks function in the form of agents and representatives of their customers. Customers give their consent for performing such functions. The important functions of these types are as follows: (i) Banks collect cheques, drafts, bills of exchange and dividends of the shares for their customers. (ii) Banks make payment for their clients and at times accept the bills of exchange: of their customers for which payment is made at the fixed time. (iii) Banks pay insurance premium of their customers. Besides this, they also deposit loan installments, income-tax, interest etc. as per directions. (iv) Banks purchase and sell securities, shares and debentures on behalf of their customers. (v) Banks arrange to send money from one place to another for the convenience of their customers. 7. Miscellaneous Functions: Besides the functions mentioned above, banks perform many other functions of general utility which are as follows: (i) Banks make arrangement of lockers for the safe custody of valuable assets of their customers such as gold, silver, legal documents etc. (ii) Banks give reference for their customers. (iii) Banks collect necessary and useful statistics relating to trade and industry. (iv) For facilitating foreign trade, banks undertake to sell and purchase foreign exchange. (v) Banks advise their clients relating to investment decisions as specialist (vi) Bank does the under-writing of shares and debentures also. (vii) Banks issue letters of credit. (viii) During natural calamities, banks are highly useful in mobilizing funds and donations. (ix) Banks provide loans for consumer durables like Car, Air-conditioner, and Fridge etc. Q 19.Difference between money market and capital market. 1.Money market is a place where banks deal in short term loans in the form of commercial bills and treasury bills. But capital market is a place where brokers deal in long term debt and equity capital in the form of debenture, shares and public deposits. 2.In money market maturity date of repayment may after one hour to 90 days. But in capital market, loans are given for 5 to 20 years and if issue of shares by co. , its amount will repay at winding of company . But investors have right to sell it to other investors if they need the money.

3.Rate of interest in money market is controlled by RBI or central bank of any country. But capital markets interest and dividend rate depends on demand and supply of securities and stock markets sensex conditions. Stock market regulator is in the hand of SEBI. 4.Main dealer of money market s are commercial banks like SBI, ICICI Bank, UTI and LIC and other financial institutions. Main dealers are all the public and private ltd. Co. and more than 30 million investors. It is increasing trend due to opening of online capital market. 5.In USA, money market is famous with dealing of money fund and bankers acceptance instruments. But capital market in USA is famous with New York stock exchange and stock regulator is Security exchange commission (SEC). Q 20. DEFINE A. BUDGET Definition: A budget is a financial document used to project future income and expenses. The budgeting process may be carried out by individuals or by companies to estimate whether the person/company can continue to operate with its projected income and expenses. A budget may be prepared simply using paper and pencil, or on computer using a spreadsheet program like Excel, or with a financial application like Quicken or QuickBooks. The process for preparing a monthly budget includes: Listing of all sources of monthly income Listing of all required, fixed expenses, like rent/mortgage, utilities, phone Listing of other possible and variable expenses. B. FISCAL DEFICIT

When a government's total expenditures exceed the revenue that it generates (excluding money from borrowings). Deficit differs from debt, which is an accumulation of yearly deficitsA fiscal deficit is regarded by some as a positive economic event. For example, economist John Maynard Keynes believed that deficits help countries climb out of economic recession. On the other hand, fiscal conservatives feel that governments should avoid deficits in favor of a balanced budget policy.

C. Money Market A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year. Money market securities consist of negotiable certificates of deposit (CDs), bankers acceptances, U.S. Treasury bills, commercial paper, municipal notes, federal funds and repurchase agreements (repos).

D. CAPITAL MARKET A market in which individuals and institutions trade financial securities. Organizations/institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds. Thus, this type of market is composed of both the primary and secondary markets. E. SHARE According to financial terminology the share is regarded as a unit of account that can represent several monetary instruments, such as stocks, REITs, mutual funds, or limited partnerships. I n Great Britain the term "shares" usually refers to stocks. In the United States, the term stocks are used to refer to the shares or even the stock certificates that may be provided by a particular company. However, as per the conventional use, the term stocks usually refers to shares. 21.Briefly explain Business cycle and its impact on business. Parkin and Bade's text "Economics" gives the following definition of the business cycle: The business cycle is the periodic but irregular up-and-down movements in economic activity, measured by fluctuations in real GDP and other macroeconomic variables. If you're looking for information on how various economic indicators and their relationship to the business cycle, please see A Beginner's Guide to Economic Indicators. Parkin and Bade go on to explain: A business cycle is not a regular, predictable, or repeating phenomenon like the swing of the pendulum of a clock. Its timing is random and, to a large degress, unpredictable. A business cycle is identified as a sequence of four phases: Contraction: A slowdown in the pace of economic activity The lower turning point of a business cycle, where a contraction turns into an expansion Expansion: A speedup in the pace of economic activity Peak: The upper turning of a business cycle

22.What is Globalization, Privatization and Liberalization? Explain with the help of example. Globalization (or Globalisation) refers to the increasingly global relationships of culture, people, and economic activity. It is generally used to refer to economic globalization: the global distribution of the production of goods and services, through reduction of barriers to international trade such as tariffs, export fees, and import quotas. Globalization contributes to economic growth in developed and developing countries through increased specialization and the principle of comparative advantage.[1][2] The term can also refer to the transnational circulation of ideas, languages, and popular culture.

Critics of globalization allege that globalization's benefits have been overstated and its costs underestimated. Critics argue that it has decreased inter-cultural contact while increasing the possibility of international and intra-national conflict. Privatization is the incidence or process of transferring ownership of a business, enterprise, agency, public service or property from the public sector (the state or government) to the private sector(businesses that operate for a private profit) or to private non-profit organizations. The term is also used in a quite different sense, to mean government outsourcing of services to private firms, e.g. functions like revenue collection, law enforcement, and prison management.[1] The term "privatization" also has been used to describe two unrelated transactions. The first is a buyout, by the majority owner, of all shares of a public corporation or holding company's stock, privatizing a publicly traded stock, and often described as private equity. The second is a demutualization of a mutual organization or cooperative to form a joint stock company.[2] Liberalization In general, liberalization (or liberalisation) refers to a relaxation of previous government restrictions, usually in areas of social or economic policy. In some contexts this process or concept is often, but not always, referred to as deregulation.[1] Liberalization of autocratic regimes may precede democratization (or not, as in the case of the Prague Spring). In the arena of social policy it may refer to a relaxation of laws restricting for example divorce, abortion, or drugs and to the elimination of laws prohibiting same-sex sexual relations or same-sex marriage. Most often, the term is used to refer to economic liberalization, especially trade liberalization or capital market liberalization. Although economic liberalization is often associated with privatization, the two can be quite separate processes. For example, the European Union has liberalized gas and electricity markets, instituting a system of competition; but some of the leading European energy companies (such as EDF and Vattenfall) remain partially or completely in government ownership. Liberalized and privatized public services may be dominated by just a few big companies particularly in sectors with high capital costs, or high such as water, gas and electricity. In some cases they may remain legal monopoly at least for some part of the market (e.g. small consumers). Liberalization is one of three focal points (the others being privatization and stabilization) of the Washington Consensus's trinity strategy for economies in transition. An example of Liberalization is the "Washington Consensus" which was a set of policies created and used by Argentina There is also a concept of hybrid liberalisation as, for instance, in Ghana where cocoa crop can be sold to a variety of competing private companies, but there is a minimum price for which it can be sold and all exports are controlled by the state.[2]

Q5) State features of business environment.

(1) Environment is the Surrounding Situation: Business environment means the surrounding situation within which business organization has to operate. It is a sum total of cultural, political, economical, social, physical, technological, legal and global forces which move around the business organization. These forces collectively create a socio-economic-political situation called business environment. Environment is an inseparable part of business which can not operate in vacuum. (2) Environment is Complex: Business environment has now become extremely complex and the government intervention has become more frequent. Business environment is a complex phenomenon and also difficult to grasp and face in its totality. This is because it is governed by external factors. Environment develops by chance and not by choice. In addition, the environment factors vary from country to country. The business environment in India and in USA may not be identical. (3) Environment is Dynamic: Business environment is dynamic and perpetually evolving. It changes frequently due to various external forces i.e. economic, political, social, international, technological and demographic. Such dynamism in the environment brings continuous change in its character. Business enterprises have no alternative but to operate under such dynamic environment. The only remedy is adjust business as per environmental changes. (4) Environment is Multi Faceted: Environmental changes are frequent but their shape and character depends on the knowledge & experience of the observer. A particular change in the environment may be viewed differently by different businessmen. This change is welcomed as an opportunity by some organizations while some others take it as a threat for their survival. (5) Environment has Long Term Impact on Business: Environment has long lasting impact on functioning of business organizations. Their growth and profitability depends upon the environment under which they have to operate. Environment influences business enterprises. Such influences may be positive or negative & may affect the profitability, efficiency & development of business. (6) Environment Needs Minute Study by Business Organizations: Every business organization has to study changes constantly taking place in the environment forces. This facilitates easy adjustments of business as per environmental changes. Such adjustment is necessary for its survival and growth. Environmental factors are, by and large, external as well as uncontrollable. In view of these constraints businessmen have to study the environment minutely and face it boldly. The success of business depends on its ability to adjust itself with the local, national and international environment. (7) Environment Influences Business Organization: Business organizations have limited capacity to influence business environment as it is the result of government policies and social and technological changes which are basically external variables. (8) Environment and Business Planning go Together: Business environment and business planning are closely related concepts. In fact, planning is necessary in order to derive maximum benefit from favorable environment. Similarly, planning is useful for dealing with the problems created by unfavorable environment. (9) Environment needs Adaptability: Business have to learn adjust with ever changing business environment. One of the basic laws of nature is that adaptability is the price of survival. In the prehistoric ages, the dinosaur and the mastodon two of the strongest and largest animal that ever lived, perished, while the insignificant cockroach survived. The reason was that those mighty animals could not adjust themselves to changes brought about by the passage of centuries, while the

cockroach could. Businessmen have to adjust with the prevailing environment. This adaptability is the price or the key survival in the business world. (10) Business Environment Changes Regularly: The environment factors changes regularly. The business environment in India is totally different as was in past. Future environment is the product of past & present environment.