Professional Documents
Culture Documents
Instructions:
2. ____ is a statement which derives the role that an organization plays in a society.
Ans. Mission
Ans. Internal
Ans. Internet
5. Culture spreads from one place to another and such transmission is called as
________.
Ans. Difference
Ans. Technology
7. The economic system in which business units or factors of
production are privately owned and governed is called as______.
Ans. Capitalism
Ans. Industrialization
Ans. consumers
Ans. GDP
Ans: The economic environment can have a major impact on businesses by affecting patterns of
demand and supply.
1. Income : One of the most important factors in the economic environment is the income of
customers. This indicates their ability to spend on the products sold by the marketer. The
marketer not only needs to estimate the income of customers, but he also must decipher the
products on which the customer would be willing to spend his money.
The rise in the number of dual income families in several parts of the world, including urban
India has led to a rise in the incomes for such families. This has resulted in a higher demand for
lifestyle and luxury products.
Some products, for instance, dishwashers, which are considered to be necessities in western
markets, do not even fall into the consideration set of consumers in the Indian market. Therefore,
despite having a higher income, customers will not spend on products that are not considered to
be desirable.
When costs of production go up, companies should try to withhold increasing prices for as long
as possible, because customers do not start valuing the product more because it is more costly. In
the long run, companies will have to look for better methods of production and cheaper inputs so
that the cost of production can be brought down.
An economy should try to achieve low rate of inflation. The best way to achieve a low rate of
inflation is to ensure that products and services are produced efficiently. When cost of
production of products and services are low, they will be sold at lower prices and hence inflation
will be low.
4. Interest Rate: If interest rate in an economy is high, businesses will borrow capital at a
higher rate and they will set up new businesses only when they are convinced that they can earn
at a rate higher than the interest rate they are paying on the capital.
Therefore, if the interest rates are high, new businesses will not come. Even among existing
businesses, operating costs would go up as their working capital requirements will attract higher
interest rates. High interest rates have detrimental effects on the economy.
When the interest rate is lower, companies can get cheap capital, and the pressure to earn at a
higher rate from their new business is less. Therefore, new businesses are likely to be set up in
the low interest regime. Further, companies can get their working capital at lower interest rate
and are able to produce products and services at lower costs.
Companies can sell at lower prices and hence are able to attract larger number of customers.
Customers are also able to get loans at lower interest rates and are hence able to buy products
and services which they would not have been able to buy otherwise. When customers can avail
of loans at low interest rates, sale of expensive items like houses and cars go up. Customers do
not have to save and accumulate to buy these products.
5. Exchange rate: Exchange rate becomes a very important driver of performance when a
company exports its products, and when it imports materials and components for making its
products. It is more profitable to export when the currency of the exporting country is weaker
than the currency of the importing country.
Exchange rate has become more important, as supply chains of most companies are becoming
global in scope, i.e., companies are locating their manufacturing and distribution centers
throughout the world, depending upon the advantages of each location.
A company may have located its manufacturing facility in a country, say India, because of
advantages of lower labour cost. But if the Indian currency appreciates, this decision will not fare
well, because exports from India will become costlier for the importer. To minimize the adverse
effects of exchange rate, a company will locate its manufacturing facilities in multiple locations
throughout the world and have some extra capacity at each of the manufacturing locations.
Companies need to keep a track of relevant economic indicators and monitor them over time.
Ans. Money Market: Money Market is a market for securities with short term maturities up to
1 year. Financial instruments with short term maturity up to 1 year, used as tools for raising
capital by the issuer are known as money market instruments.
It involves lending and borrowing of short-term funds. Money market instruments like treasury
bills, certificate of deposit and bills of exchange are traded their having maturity less than one
year. Investment in money market is safe but it gives low rate of return.
1. Treasury Bills (T-Bills) : Treasury bills or T- Bills are issued by the Reserve Bank of
India on behalf of the Central Government for raising money. They have short term maturities
with highest up to one year. Currently, T- Bills are issued with 3 different maturity periods,
which are, 91 days T-Bills, 182 days T- Bills, 1year T – Bills. They are the safest short-term
fixed income investments as they are backed by the Government of India.
2. Commercial Papers Large companies and businesses issue promissory notes to raise
capital to meet short term business needs, known as Commercial Papers (CPs). These firms have
a high credit rating, owing to which commercial papers are unsecured, with company’s
credibility acting as security for the financial instrument.
Corporate, primary dealers (PDs) and All-India Financial Institutions (FIs) can issue CPs.
CPs have a fixed maturity period ranging from 7 days to 270 days. However, investors can trade
this instrument in the secondary market. They offer relatively higher returns compared to that
from treasury bills.
3. Certificates of Deposits (CD) : CDs are financial assets that are issued by banks and
financial institutions. They offer fixed interest rate on the invested amount. The primary
difference between a CD and a Fixed Deposit is that of the value of principal amount that can be
invested.
The maturity period of Certificates of Deposits ranges from 7 days to 1 year, if issued by banks.
Other financial institutions can issue a CD with maturity ranging from 1 year to 3 years.
Capital Market : Capital market is also very important part of Indian financial system .This
segment of financial market meant to meet long term financial needs usually more than one year
or more .Companies like manufacturing , infrastructure power generation and governments
which need funds for longer duration period raise money from capital market. Individuals and
financial institutions who have surplus fund and want to earn higher rate of interest usually
invest in capital market.
1. Shares : Share is the share in the share capital of the company. It is one of the units into
which the capital of company is divided. A person having the shares of the company is called as
shareholder of that company. He is regarded as the part of owner of the company.
There are 2 types of shares: a. Equity shares and b. Preference shares
2. Debentures: Debentures are long term borrowed funds of the company. They have fixed
maturity period as well as fixed interest rate. These are the certificates issued under common seal
of the company.
3. Bonds: Bonds are the long term borrowed funds of the government and companies. Like
debentures have fixed maturity and fixed interest rate even bonds have. Here interest charged on
bonds termed as coupon rate.
4. Derivatives: These are instruments that derive from other securities, which are referred to as
underlying assets. The price, riskiness and function of the derivative depend on the underlying
assets since whatever affects the underlying asset must affect the derivative.
Some examples of derivatives are: Futures, Options, Swaps , Exchange Traded Funds or
commodities
Ans. A commercial bank is a kind of financial institution which carries all the operations related
to deposit and withdrawal of money for the general public, providing loans for investment, etc.
These banks are profit-making institutions and do business only to make a profit.
The two primary characteristics of a commercial bank are lending and borrowing. The bank
receives the deposits and gives money to various projects to earn interest (profit). The rates of
interest that a bank offers to the depositors are known as the borrowing rate, while the rate at
which banks lends the money is called the lending rate.
These banks are owned and controlled by the government. The main objective of these banks is
to provide service to the society, not to make profits. State Bank of India, Bank of India, Punjab
National Bank, Canada Bank and Corporation Bank are some examples of public sector banks.
Public sector banks are of two types:
(a) SBI and its subsidiaries;
(b) Other nationalized banks
(iii) Foreign Banks:
These banks are owned and controlled by foreign promoters. Their number has grown rapidly
since 1991, when the process of economic liberalization had started in India. Bank of America,
American Express Bank, Standard Chartered Bank are examples of foreign banks.
2. Non-Scheduled: Non-Scheduled banks refer to those banks which are not included in the
Second Schedule of Reserve Bank of India Act, 1934.
The functions of commercial banks are classified into two main divisions:
(a) Primary functions –
Accepts deposit – The bank takes deposits in the form of saving, current and fixed deposits. The
surplus balances collected from the firm and individuals are lent to the temporary required of
commercial transactions.
Provides Loan and Advances – Another critical function of this bank is to offer loans and
advances to the entrepreneurs and businesspeople and collect interest. For every bank, it is the
primary source of making profits. In this process, a bank retains a small number of deposits as a
reserve and offers (lends) the remaining amount to the borrowers in demand loans, overdraft,
cash credit and short-run loans, etc.
Credit Cash- When a customer is provided with credit or loan, they are not provided with liquid
cash. First, a bank account is opened for the customer and then the money is transferred to the
account. This process allows a bank to create money.
(b) Secondary functions –
Discounting bills of exchange – It is a written agreement acknowledging the amount of money
to be paid against the goods purchased at a given point of time in the future. The amount can also
be cleared before the quoted time through a discounting method of a commercial bank.
Overdraft Facility – It is an advance given to a customer by keeping the current account to
overdraw up to the given limit.
Purchasing and Selling of the Securities – The bank offers you
with the facility of selling and buying the securities.
Locker Facilities – Bank provides lockers facility to the customers to keep their valuable
belonging or documents safely. Banks charge a minimum of an annual fee for this service.
Paying and Gather the Credit – It uses different instruments like a promissory note, cheques
and bill of exchange.
Q4. What is Social Responsibility of Business towards its employees and towards Society?
Ans: Social responsibility is a voluntary effort on the part of business to take various steps to
satisfy the expectation of the different interest groups. As you have already learnt, the interest
groups may be owners, investors, employees, consumers, government and society or community.
Following are few points:
i. Public Image - The activities of business towards the welfare of the society earn goodwill and
reputation for the business. The earnings of business also depend upon the public image of its
activities. People prefer to buy products of a company that engages itself in various social
welfare programmes. Again, good public image also attracts honest and competent employees to
work with such employers.
ii. Government Regulation - To avoid government regulations businessmen should discharge
their duties voluntarily. For example, if any business firm pollutes the environment it will
naturally come under strict government regulation, which may ultimately force the firm to close
down its business. Instead, the business firm should engage itself in maintaining a pollution free
environment.
iii. Survival and Growth -Every business is a part of the society. So, for its survival and growth,
support from the society is very much essential. Business utilizes the available resources like
power, water, land, roads, etc. of the society. So, it should be the responsibility of every business
to spend a part of its profit for the welfare of the society.
iv. Employee satisfaction - Besides getting good salary and working in a healthy atmosphere,
employees also expect other facilities like proper accommodation, transportation, education and
training. For example, if business spends money on training of the employees, it will have more
efficient people to work and thus, earn more profit.
v. Consumer Awareness - Now-a-days consumers have become very conscious about their
rights. They protest against the supply of inferior and harmful products by forming different
groups. This has made it obligatory for the business to protect the interest of the consumers by
providing quality products at the most competitive price.
Responsibility towards employees: Business needs employees or workers to work for it. These
employees put their best effort for the benefit of the business. So, it is the prime responsibility of
every business to take care of the interest of their employees. If the
employees are satisfied and efficient, then the only business can be successful. The
responsibilities of business towards its employees include:
a. Timely and regular payment of wages and salaries
b. Proper working conditions and welfare amenities
c. Opportunity for better career prospects
d. Job security as well as social security like facilities of provident fund, group insurance,
pension, retirement benefits, etc.
e. Better living conditions like housing, transport, canteen, crèches etc.
f. Timely training and development
Ans. LPG :
LPG stands for Liberalization, Privatization, and Globalization. India under its New Economic
Policy approached International Banks for development of the country. These agencies asked Indian
Government to open its restrictions on trade done by the private sector and between India and other
countries.
Liberalization: The basic aim of liberalization was to put an end to
those restrictions which became hindrances in the development and growth of the nation. The
loosening of government control in a country and when private sector companies’ start working
without or with fewer restrictions and government allow private players to expand for the growth of
the country depicts liberalization in a country.
Privatization: This is the second of the three policies of LPG. It is the increment of the
dominating role of private sector companies and the reduced role of public sector companies. In
other words, it is the reduction of ownership of the management of a government-owned enterprise.
Government companies can be converted into private companies in two ways:
By disinvestment
By withdrawal of governmental ownership and management of public sector companies.
Globalization: It means to integrate the economy of one country with the global economy.
During Globalization the main focus is on foreign trade & private and institutional foreign
investment. It is the last policy of LPG to be implemented.
Mixed Economy:
The term ‘mixed economy’ is used to describe an economic system, such as that found in India,
which seeks to compromise between capitalism and socialism. In such a form of economy, the
elements of government control are combined with market elements in organizing production
and consumption.
Here, some planning of production is undertaken by the State directly or through its nationalized
industries, and some is left to private enterprise. It means that both the socialistic sector (i.e., the
public sector) and the capitalistic sector (i.e., the private sector) exist side by side and comple-
ment each other.