PGDIBO SOLVED ASSIGNMENT 2019-20

IBO-01

INTERNATIONAL BUSINESS ENVIROMENT

Q1 CRITICALLY EXAMINE THE PARTIAL EQUILIBRIUM THEORY OF TRADE .

ANS: The Meaning of Partial Equilibrium:-

In partial equilibrium analysis, the effects of policy actions are examined only in the markets
that are directly affected. Supply and demand curves are used to depict the price effects of
policies. Producer and consumer surplus is used to measure the welfare effects on participants
in the market. A partial equilibrium analysis either ignores effects on other industries in the
economy or assumes that the sector in question is very, very small and therefore has little if any
impact on other sectors of the economy.

In contrast, a general equilibrium analysis incorporates the interaction of import and export
sectors and then considers the effects of policies on multiple sectors in the economy. It uses offer
curves to depict equilibria and measures welfare with aggregate welfare functions or trade
indifference curves.

The Large versus Small Country Assumption:-

Two cases are considered regarding the size of the policy-setting country in international
markets. The effects of policies vary significantly depending on the size of a country in
international markets.

If the country is a ―large country‖ in international markets, then the country‘s imports or exports
are a significant share in the world market for the product. Whenever a country is large in an
international market, domestic trade policies can affect the world price of the good. This occurs
if the domestic trade policy affects supply or demand on the world market sufficiently to change
the world price of the product.

If the country is a ―small country‖ in international markets, then the policy-setting country has a
very small share in the world market for the product—so small that domestic policies are unable
to affect the world price of the good. The small country assumption is analogous to the
assumption of perfect competition in a domestic goods market. Domestic firms and consumers
must take international prices as given because they are too small for their actions to affect the
price.

MAIN POINTS:-

 Partial equilibrium analysis uses supply and demand curves in a particular market and
ignores effects that occur beyond these markets.
 Large countries are those whose trade volume is significant enough such that large
changes in trade flows can affect the world price of the good.
  Small countries are those whose trade volume is not significant enough such that any
changes in its trade flows will not affect the world price of the good.

The advantages of partial equilibrium modeling:-

The main advantage of the partial equilibrium approach to Market Access Analysis is its
minimal data requirement. In fact, the only required data for the trade flows, the trade policy
(tariff), and a couple of behavioral parameters (elasticities). This can therefore take advantage of
the rich WITS datasets which contain all of those.

The disadvantages of partial equilibrium modeling:-

The partial equilibrium approach also has a number of disadvantages that have to be kept in
mind while conducting any analysis. Since it is only a partial equilibrium model of the economy,
the analysis is only done on a pre-determined number of economic variables. This makes it very
sensitive to a few (badly estimated) behavioral elasticities.

Due to their simplicity also, partial equilibrium models may miss important interactions and
feedbacks between various markets. In particular, the partial equilibrium approach tends to
neglect the important inter-sectoral input/output (or upstream/downstream) linkages that are
the basis of general equilibrium analyses. It also misses the existing constraints that apply to the
various factors of production
Q2 WHY DO FIRMS BECOME TRANSITIONAL? DISCUSS VARIOUS THEORIES
EXPLAINING EMERGENCE OF TRANSLATIONAL CORPORATIONS IN THE WORLD
ECONOMY.

ANS:- Multinational corporations are very often known as transnational corporations. Many
people do not see any major difference between the two terms. However, there is a slight
difference between them. Contrary to MNCs, transnational corporations are known for the fact
that there is no centralized office in a certain country (Cromwell n.d.). MNCs, in their turn, have
headquarters in a single country; however, the main activity of these companies take place in
several countries, continents (Encyclopedia Britannica 2012). Hence, both types of corporations
operate beyond the national borders. Furthermore, MNCs are known to be independent from
government. There are no orientations on specific countries while conducting direct business
activities. Moreover, they are known to produce and deliver goods and services to numerous
countries (Boundless n.d.). According to Michilie (2003), TNCs are able to plan, control and
implement business activities across different nations, countries. In other words, the perfect
scenario for multinational corporations is to use skilled workers from the developed economies
and have plants in emerging economies. Moreover, the products that are made in the host
country are supposed to be easily transported to developed countries and sold there with a
certain added value.

Multinational companies gained popularity some twenty years ago. They have their origins back
to the years of the escalation of globalization. Up till now, there has been seen a double increase
in the number of such corporation comparing to the number of corporations some twenty years
ago (Kotler&Amstrong 2012). There are 150 largest economies in the world, however; only 81
counties can be called largest economies (Kotler&Amstrong 2012). Therefore, there are about 69
corporations that are considered to be world economies (Kotler&Amstrong 2012).

The most known ones, according to the Economist (2012) are the following: General Electric,
Royal Dutch Shell, BP, Exxon Mobil, Toyota and many others. Many of these companies have
about ninety per cent of their assets in foreign countries (The economist 2012). For instance,
General Electric has about fifty two per cent of its foreign assets (The economist 2012). Nestle is
a leading company, when it comes to the percentage of foreign sales. It accounts for almost
ninety nine per cent of aggregate number of foreign assets (The economist 2012). The sectors
where most multinational corporations operate in are manufacturing and finance (UN 2009).
However, financial industry has lost recently its popularity and credibility among TNCs due to
many crises that happened in the past. Consequently, there are some opinions that nowadays
corporations tend to prioritize more ‗soft industries‘ and concentrate on producing/selling food
and drinks, apparel and books (Bremmer 2014). Multinational companies are rarely competitive
in such spheres as aircraft manufacturing (Bremmer 2014).

Some might consider that MNCs only have good effects on the world economy; however, there is
a reverse side of it as well. Further both sides of this issue will be discussed.

Starting with the positive role, MNCs act as modernizers of the world economy. It is reflected as
a result of constant promotion of new technologies and introducing innovations across the
world. Especially they are active by introducing technologies to relatively remote places.
Therefore, some industries are being redesigned so that they could be competitive (UN 2009).
The innovations are seen not only in technological realm, but also in medicine, education and
social policies. By bringing progress to the poorest economies, MNCs employ people and
educate them. Moreover, by minimizing the costs of the productions of many products,
multinational companies supply relatively cheap products to the developed markets (The
Economist 1997). Moreover, these services and goods facilitate people‘s lives. Additionally, some
products contribute to people‘s high standard of living. However, there are no guarantees that
every single country benefits from MNCs and that technologies reach every single undeveloped
country (UN 2009)

Second of all, such corporations promote efficiency and growth of the world economy (Michie
2003). Multinational corporations are likely to establish interconnection between the domestic
economies of some isolated countries and the world‘s greatest economies (Boundless n.d.). In
addition to that, they promote globalization. By doing this, multinational corporations are
viewed very relatively by different people

The third positive role is economic integration that is likely to be brought by corporations.
MNCs promote regional agreements and alliances. One of the most famous ones is NAFTA
(Michie 2003). Hence, it is very important for the creating of a single world market (Boundless
n.d.). Not only they bring innovations in technology, but also in organisational structures. Other
companies can increase their level of management because the national standards are increase
once the corporations start operating in this country.

Another role can be seen in the increase of money circulation in the economy. MNCs‘ activities
are very likely to result in profit maximization because one company can provide same service
and implement same strategies in several countries (The Economist 1997). They create
competition for other companies. However, very often Multinational corporations merger with
small companies in order to become more influential on a national market (The Economist
1997).

The corporation s triggered, in a sense, globalization and actively promotes it (Michie 2003).
However, there is an opinion that globalization in fact reduces the benefits for multinational
companies. First of all, it becomes not profitable for companies to seek for emerging markets,
conduct research, educate the worker, launch plants and etc. Second of all, sometimes it is easier
to export to other countries. Moreover, effective supply chain management reduces the costs of
transportation of the goods and services to the customers in different countries. The third
reason is that there is a principle of the economies of scale. This principle depicts that it is more
sensible for a company to expend on one territory because the more it produces in one place, the
less costly the whole production process would be.

Transnational corporations are known to provide loans to the poorest countries and to invest in
them (Michie 2003). According to the Economist magazine, multinational companies are
important for investment sector as well as trade (The Economist 1997) For instance, statistics of
the growing foreign direct investments in many developing countries can prove clear the
strategic importance of them. However, the role of investments is vital also for the world
economy. However, regardless of constant investments, MNCs still prioritize investing in
developed economies over developing (The Economist 1997).

Since foreign investments tend to create more jobs, they also determine wages. In most cases
they raise wages in a host country. It happens because such corporations have relatively high
productivity and high profit. By raising wages, people will have more of the disposable income.
Moreover, they will spend more money on goods and services. Therefore, the local economy will
boost. Another impact of raising wages is that other companies will also raise wages in order to
either preserve or stimulate employees. All in all, FDI have a positive impact on wages in
developing countries (Michie 2003). In other words, FDIs set the rates for wages. Hence,
multinational companies stimulate labour movement because they carefully choose the
specialists for managerial positions (The economist 1997).

The negative side of MNCs can be seen in the scenarios when companies tend to make usage of
cheap labour and relatively rich natural resources of a country (The Economist 1997). Moreover,
multinational companies are known to rarely take care of the well-being of the country where
they place their businesses (The Economist 1997). The main goal for such corporations is to get
as much profit as possible. In most cases they strive to advance and highlight the development
of a global capitalism (The Economist 1997). Many companies launch their factories in different
countries in order to minimize the costs of production. Moreover, the resources that are used to
produce certain goods are usually brought from the original country of a multinational
corporation (where the headquarter is). Therefore, some companies rarely utilize the resources
of the emerging countries.

When it comes to employment possibilities, undoubtedly, MNCs create new jobs. Thus, they
usually tend to pay relatively low wages. Therefore, the issue of the acceptation of countries with
relatively cheap labour force and land from Eastern and Central Europe tend to be very
attractive for plenty of corporations

Q3 WHAT ARE LONG TERM FACTORS AFFECTING THE DEMAND FOR PRIMARY
COMMODITIES? DISCUSS AND EXPLAIN MAJOR INTERNATIONAL COMMODITY
AGREEMENTS.

ANS: LONG TERM FACTORS AFFECTING THE DEMAND FOR PRIMARY COMMODITIES:-

Government

Government holds much sway over the free markets. The fiscal and monetary policies that
governments and their central banks put in place have a profound effect on the financial
marketplace. By increasing and decreasing interest rates, the U.S. Federal Reserve can
effectively slow or attempt to speed up growth within the country. This is called monetary policy.

If government spending increases or contracts, this is known as fiscal policy, and can be used to
help ease unemployment and/or stabilize prices. By altering interest rates and the amount of
dollars available on the open market, governments can change how much investment flows into
and out of the country. (Learn more in our Federal Reserve Tutorial.)

International Transactions

The flow of funds between countries effects the strength of a country's economy and its
currency. The more money that is leaving a country, the weaker the country's economy and
currency. Countries that predominantly export, whether physical goods or services, are
continually bringing money into their countries. This money can then be reinvested and can
stimulate the financial markets within those countries.

Speculation and Expectation

Speculation and expectation are integral parts of the financial system. Consumers, investors and
politicians all hold different views about where they think the economy will go in the future and
that effects how they act today. Expectation of future action is dependent on current acts and
shapes both current and future trends. Sentiment indicators are commonly used to gauge how
certain groups are feeling about the current economy. Analysis of these indicators as well as
other forms of fundamental and technical analysis can create a bias or expectation of future
price rates and trend direction.

Supply and Demand

Supply and demand for products, services, currencies and other investments creates a push-pull
dynamic in prices. Prices and rates change as supply or demand changes. If something is in
demand and supply begins to shrink, prices will rise. If supply increases beyond current
demand, prices will fall. If supply is relatively stable, prices can fluctuate higher and lower as
demand increases or decreases.

These factors can cause both short- and long-term fluctuations in the market, but it is also
important to understand how all these elements come together to create trends. While all of
these major factors are categorically different, they are closely linked to one another.
Government mandates can effect international transactions, which play a role in speculation,
and changes in supply and demand can play a role in each of these other factors.

Government news releases, such as proposed changes in spending or tax policy, as well as
Federal Reserve decisions to change or maintain interest rates can also have a dramatic effect on
long term trends. The lowering of interest rates and taxes can encourage spending and economic
growth. This in turn has a tendency to push market prices higher. However, the market does not
always respond in this way because other factors may also be at play. Higher interest rates and
taxes, for example, can deter spending and result in a contraction or a long-term fall in market
prices.

MAJOR INTERNATIONAL COMMODITY AGREEMENTS:-

An international commodity agreement is an undertaking by a group of countries to stabilize

trade, supplies, and prices of a commodity for the benefit of participating countries. An
agreement usually involves a consensus on quantities traded, prices, and stock management. A
number of international commodity agreements serve solely as forums for information
exchange, analysis, and policy discussion.

USTR leads United States participation in two commodity trade agreements: the International
Tropical Timber Agreement and the International Coffee Agreement (ICA). Both agreements
establish intergovernmental organizations with governing councils .

1INTERNATIONAL RUBBER AGREEMENT

Only this agreement was negotiated under the Integrated Programme of Commodities. It was
concluded on 6th October 1979 and came provisionally in force in April 1982. However, the
agreement came into operational in November 1981 when the buffer stock manager started
buying natural rubber in order to stabilize prolonged decline in natural rubber.

Thisagreement got the support of producers and consumers. Malaysia‘s share was 41.5 percent,
Indonesia‘s 23.5 per cent and Thailand‘s 13.8 per cent. There are three countries who together
constitute 88 per cent of world exports. The major consumers of natural rubber are: the US -25
per cent, European Community -23 per cent and Japan – 11 per cent. The main concern of all
consumers is assured supply. Tyre manufacturers, specially those of radial tyres, needed more
rubber. It was estimated that the supply of rubber would grow slowly. Further, consumers were
also afraid of inflationary pressures and rise in commodity prices. It was also felt that high
prices of petroleum had raised the prices of products based on petro- chemicals. Hence tyre
manufacturers were keen on stable prices. The International Natural Rubber Agreement used
buffer stock operation to maintain prices at specified level. There was expected to be regular
review of prices at every 18 months. Sale from buffer stock and purchase by buffer stock agency
was made on the basis of stipulated price. This agreement met with mixed success during its
operation. It has managed to hold the price within the specified stabilization range despite a
very severe recession in rubber demand. It is criticized that it was done at the cost of a continual
accumulation of stocks.

2. International Sugar Agreement

There have been four international sugar agreements in post war period. The first one was
signed in 1953, second in 1958, with a five year gap, a third agreement was signed in 1968. After
a four year gap a fourth agreement was signed. Negotiation under the auspices of UNCTAD
through 1983 and 1984 failed to result in any agreement. Sugar agreement operated entirely
through export controls. It did not achieve much success. One of the reasons for the agreements
failure was that sugar is produced by developed an developing countries. Further, holding stocks
was yet another problems.

3. International Tin Agreement

The first year international tin agreement became operational in 1956. These agreements have
subsequently renewed and sixth agreement came into force on a provisional basis. Since the US
did not become a party under the agreement, the International Tin Council has intervened in the
tin market both by negotiated supply restriction and through operation of buffer stock. This
intervention has been considered moderately successful.

4. International Cocoa Agreement

Cocoa trade has a long history of attempting to stabilize through buffer stock operations. In
1956, the UN Committee on International Commodity Agreement was asked by the UN to hold
a conference. It passed a resolution requesting Food and Agricultural Organization

(FAO) to suggest method of stabilizing prices. The work of FA0 cocoa study group resulted

in a draft of an international commodity agreement on which an international conference was

called in 1965. Since then three subsequent conferences have been held- in 1966, 1967 and

1972. In 1972 the agreement was ratified. It must be noted that the UNCTAD took over from

FAO the work of the cocoa study group although FAO continued to give technical assistance.

Although a number of conferences were held, the UN negotiation conference which was held

in New York. May to June 1966 failed to reach the agreement. The major disagreement was

how to decide the floor price at which the buffer stock authority would intervene in the

market. But a series of negotiations could not result in an agreement. In 1972 a draft

international cocoa agreement was made.

The agreement included three provisions: (i) Minimum price of 23 US cents and maximum

price of 32 US cents per year; (ii) a quota adjustment mechanism; and (iii) a buffer stock of

250,000 tons capacity to be financed through a levy of 1 US cents per pound on exports and

imports of cocoa. Third international cocoa agreement was signed in 1980 and came into

operation in 1981.

The agreements did not succeed because of two major reasons (a) the absence of Ivory Coast

was a factor, (b) lack of adequate resources and (c) the buffer stock was completely inactive.
5. International Coffee Agreement

The first agreement became operational in 1963. The first agreement effectively formalized and
gave consumer sanction to this arrangement. There was some rise in prices. The second
agreement was terminated in 1972, the consumer export quotas was the most important
instrument to stabilize prices. The fourth agreement in 1986 had many difficulties in its
conclusion.

i) Renegotiation of quotas was expected to be there under which Brazil the main producer would
lose its quota to the new comer such as Indonesia and African countries.

ii) US had joined this agreement for a full six years period. Yet it noted funds upto 1986.

iii) The 1985 collapse of the International Tin Agreement, together with the dramatic fall in oil
prices through 1985 and 1986, have considerably reduced public confidence that international
control of commodity prices is feasible.

6. International Olive Oil Agreement

In 1956 and 1963 there were International Olive Oil Agreements. In 1955, under the auspices of
the U.N., 11 members participated of which 9 were exporting countries and 2 were importing
countries. In 1963 7 were exporting countries and 4 were importing countries. An International
Olive Oil Council was established in 1963. The duration of the agreements of 1959 and 1963 was
four years each. The Olive Oil Council was expected to make studies of the olive oil market,
production, prices, etc. These agreements had price stabilization objective through price control.

7. International Wheat Agreement

In the early twenties and the thirties wheat was brought under the control of four main
producers. The restrictions included those on acreage and export. The operation of the earlier
wheat agreement demonstrated the need for some form of sanction to enforce compliance by
participants. There were six international wheat agreements : in 1933, 1942, 1949, 1953, 1956
and 1959. The duration of the agreements varied from failure 1942 of the agreement to 2-4
years. The major instruments of control had been export quotas and acreage restriction in the
1933 agreement. In the 1942 agreement there were more instruments and the International
Wheat Council was established. Other agreements included price and buffer stock. Wheat
agreement was only one multilateral contract.

Q4 COMMENT ON THE FOLLOWING

i.DEMOGRAPHIC ENVIRONEMENT DOES NOT INFLUENCE THE INTERNATIONAL

BUSINESS DECISIONS.

ANS:To be successful, both new and existing businesses use several factors in the environment
to gauge the direction in which they should steer. For example, companies in the start-up phase
and experienced companies expanding into new markets both should evaluate the strengths and
weaknesses of competitors. Other environmental factors include the general economic climate
and customer demand. Businesses evaluate these factors and often find ways to succeed through
innovative technologies, clever marketing tactics and unique product and service offerings.

1.COMPETITOR:- A business makes many decisions about the direction to go based on the the
success, or lack thereof, of its competitors. From the customers' standpoint, competition
provides choice. Businesses must analyze competitors to find and exploit weaknesses to gain
increased market share

2.CUSTOMER: Customers provide the backbone of success for any business, whether business-
to-consumer or business-to-business. According to James Neblett--a presenter at the 2004
International Association for Management of Technology conference--businesses must conduct
research in their industries to determine levels of product demand by customers, which provides
foundations for company sales and profits. For a company to be successful, it must also keep up
with changing customer views, attitudes and demand for products and services.

ii.TEHCNOLOGY MARKET IS NOT A SELLER‘S MARKET.

ANS: A seller's market is a market condition characterized by a shortage of goods available for
sale, resulting in pricing power for the seller. A seller's market is a term commonly applied to the
property market when low supply meets high demand.

A seller's market comes into formation when demand exceeds supply for a product or service. A
"seller's market" is often heard in real estate to describe a shortage of properties in the face of
healthy demand. The seller of a house in a town with a good school system and limited inventory
would have firm control over setting the house price. Her house could invite multiple bids and it
would not be unusual for bids to exceed the seller's asking price. A buyer's market is the
opposite situation, where supply exceeds demand and therefore the power resides with the
buyer in terms of setting a price.

Certain conditions create a seller's market in the corporate landscape. Again, excess demand for
an asset that is limited in supply will shift the balance of power to the seller's side in pricing.
Demand is stimulated and bolstered by a positive economic environment, low or modest interest
rates, high cash balances, and strong earnings, and other reasons. When executives of a
company are confident about its future prospects, they are more willing to pay larger premiums
for assets that have scarcity value. These target companies may have superior brand equity, an
innovative or leading technology, a dominant market share in a product area or geography, or an
efficient distribution network that is difficult to replicate. Whatever the reason for its relative
scarcity, the company, if it decides to put itself up for sale, would likely receive a bid or multiple
bids (price war) that the Board of Directors and shareholders would find attractive

iii.ARBITRATION IS NOT PREFERRED BY THE PARTIES INVOLVED IN INTERNATIONAL

BUSINESS.
ANS: Arbitration, a form of alternative dispute resolution (ADR), is a way to resolve disputes
outside the courts.The dispute will be decided by one or more persons (the "arbitrators",
"arbiters" or "arbitral tribunal"), which renders the "arbitration award".

The parties involved understand, and in many cases require, that the arbitration process be
confidential with respect to the legal determinations made by the arbitrators and laws governing
the international commercial relationship.

USE OF ARBITRATION IN INTERNATIONAL DISPUTES

A. Advantages of Arbitration over Litigation

1. Enforceability of Arbitral Awards

a. More than 70 countries recognize and enforce foreign awards as parties to New York
Convention (see Sec. V).

b. Awards can be attacked only under very limited circumstances.

2. Impartiality of Decision Maker. Neither party may be able to find neutral tribunal in other
country.

3. Confidentiality. Arbitrations and awards are normally private; court proceedings and
judgments are public.

4. Technical Expertise. Parties may choose arbitrators with technical backgrounds.

5. Discovery. Limited discovery in arbitration, so less burdensome.

6. Expense. Usually less expensive than litigation.

7. Expeditious Resolution.

8. Familiarity. Party is often unfamiliar with foreign legal system.

B. Kinds of Disputes Subject to Arbitration

1. Commercial disputes between private parties of different countries.

2. Investor disputes with host government

a. Because of uncertainty of adequate relief in foreign courts, agreement to arbitrate in a forum

where enforcement of award is assured may be essential.

b. Contracts between investors and foreign states can be "internationalized" by agreement to

arbitrate and be bound by contract provisions. "Internationalization" implies that rights and
duties of parties cannot be legally affected by unilateral action of host state.
II. MECHANISMS FOR ARBITRATION

A. Ad hoc Arbitration

1. Parties specify in agreement all aspects of arbitration, including applicable law, rules under
which arbitration will be carried out, method for selecting arbitrator, language, place of
arbitration and arbitrable issues.

2. Rules of arbitration institution may be used without submitting to administration by that

institution.

3. Parties may select ad hoc arbitration to reduce costs, to accelerate arbitration and to structure
proceedings to suit needs.

B. Institutional Arbitration

1. Parties specify in agreement an arbitration institution to administer the arbitration from time
of demand for arbitration through award.

2. Institution chosen may administer arbitration according to its own rules or rules of another
institution.

3. Advantages:

a. Availability of pre-established rules;

b. Administrative assistance if institution has secretariat or court of arbitration;

c. Appointment of arbitrators;

d. Physical facilities for arbitrations and support services;

e. Review of final award to assure it meets basic requirements for enforcement; and

f. Assistance in encouraging reluctant parties to proceed with arbitration.

4. Primary disadvantages are costs (in addition to legal fees) and delays:

a. Administrative fees for services and facilities of institution and arbitrator's services;

b. Expenses may be high in disputes over large amounts, especially if fees are related to amount
in dispute;

c. Institution's bureaucracy may promote delays costs; and d. Responses by parties may be
required in very short time period.
iv.ENCRYPTION DOES NOT CONVERT DATA INTO AN UNINTELLIGIBLE FORM.

ANS: We live in a world where computers and the internet are nearly everywhere. With that
comes the fact that individuals and companies are facing a rapidly increasing online threat:
cybercrime.

The market is bigger than ever before, making the internet the new (and profitable) frontier for
(cyber) criminals. That means that protecting our digital presence is of utmost importance, and
encryption is an important security measure.

For example, email software, online banking, webshops, hotel websites and news websites are
just a few examples of the vast quantity of platforms that use encryption to protect data.

The method of protecting information by encrypting it isn‘t a recent solution. The Greeks and
Egyptians used cryptography thousands of years ago to protect important messages from
unwanted eyes.

That being said, the techniques and methods are very different and more advanced in today‘s
digital world in order to protect and secure our data.

Encryption is used to make sure that important data can‘t be stolen or abused for fraudulent
activities by hackers.

Encryption is a modern variant of ancient cryptography schemes. It‘s based on a complex

algorithm called a ―cipher.‖

Its purpose is to hide important information from others by turning plaintext data into a series
of random ciphertext, which makes it impossible to read the plaintext without decoding the data
with a special decryption key.

In cryptography, plaintext (unencrypted information) is the data that presents itself in readable
material, e.g., that email you wrote to your boss.

The opposite of plaintext is called ciphertext. Ciphertext (encrypted information) is that data
that contains a form of the original and encrypted plaintext, but it‘s unreadable for humans and
computers.

Simply put, encryption is the process of converting sensitive data or information into
unintelligible data

Encryption keys are designed to be absolutely one-of-a-kind, using a set of different algorithms.
The encryption key is used to encode or decode data.

That basically means that an encryption key is able to mix up the data into unreadable
characters, and it can revert those unreadable characters back into plaintext as well.
For example, when I encrypt a set of data and create a unique key to lock my data, I can share
the encrypted data with my friends or colleagues. In order to view the data, all they need is the
encryption key that I have.

Q5 WRITE NOTE ON FOLLOWING

i.TERMS OF TRADE

ANS: Terms of trade represent the ratio between a country's export prices and its import prices.
The ratio is calculated by dividing the price of the exports by the price of the imports and
multiplying the result by 100. When a country‘s TOT is less than 100%, more capital is leaving
the country than is entering the country. When the TOT is greater than 100%, the country is
accumulating more capital from exports than it is spending on imports.

Factors Affecting Terms of Trade:-

A variety of factors affect the TOT, and some are unique to specific sectors and industries.
Scarcity, or the amount of goods available for trade, is one factor influencing the TOT. The more
goods a vendor has available for sale, the more goods it will likely sell, and the more goods that
vendor can buy using capital obtained from sales.

For example, during the commodity price boom of the early 2000s, developing countries
experienced increases in their terms of trade. When selling a certain quantity of commodities,
such as oil and copper, they could buy more consumer goods from other countries.

The size and quality of goods also affect TOT. Larger and higher-quality goods will likely cost
more. If goods sell for a higher price, a seller will have additional capital to purchase more
goods.

Fluctuating Terms of Trade

When a country‘s TOT improves, for every unit of export that a country sells, it can purchase
more imported goods. Therefore, an increase in the TOT may be beneficial because the country
needs fewer exports to buy a given number of imports. When the TOT increases, it may also
have a positive impact on domestic cost-push inflation because the increase is indicative of
falling import prices in relation to export prices. However, the country‘s export volumes could
fall to the detriment of the balance of payments.

When a country‘s TOT deteriorates, the country must export a greater number of units to
purchase the same number of imports. The Prebisch-Singer hypothesis states that some
emerging markets, or developing countries, have experienced declining TOT because of a
generalized decline in the price of commodities relative to the price of manufactured goods. In
the past two decades, however, a rise in globalization has reduced the price of manufactured
goods. Thus, industrialized countries' advantage over developing countries is becoming less
significant.

ii.STRATEGIC ALLIANCES AND TECHNOLOGY TRANSFER.

ANS: R&D ALLIANCES

1. Licensing agreement: legal permission to utilize patents or proprietary technology for an up-
front fee and/or royalties.

2. Cross-licensing agreement: two or more companies give legal permission to use each other's
patents or proprietary technology.

3. Technology exchange: a swap of proprietary technologies, which may or may not involve a
transfer of money.

4. Visitation and research participation: the dispatch of researchers to visit, observe, and
participate in the R&D activities of partner firms.

5. Personnel exchange: an ongoing and reciprocal program in which researchers from one
company spend time working at the partner company.

6. Joint development: two or more companies joining forces to develop new products or
technology.

7. Technology acquisition investments: foreign investments in companies aimed at gaining

access to technology, especially in small, start-up or innovative, medium-sized firms.

MANUFACTURING ALLIANCES

8. Original equipment manufacturing (OEM): manufacturing a product for another company,

which sticks its label on it and handles all aspects of business activities, including marketing and
servicing, as if it had manufactured the product itself.

9. Second sourcing: an arrangement whereby a company is given permission to manufacture a

product designed and developed by another company as a second source of supply for
customers, using the same specifications.

10. Fabrication agreement: use of another company's fabrication facilities to manufacture a

product (because the partner lacks its own manufacturing facilities or wishes to subcontract out
the task of fabrication).

11. Assembly and testing agreement: components and parts manufactured elsewhere are sent to
another company where they are assembled and tested.

MARKETING AND SERVICE ALLIANCES

12. Procurement agreement: a commitment to purchase certain quantities of specific goods or
services over a specified period of time.

13. Sales agency agreement: exclusive or nonexclusive rights to sell the partner's original
products, or products to which value is added, in specified markets.

14. Servicing contracts: the provision of follow-up service in foreign markets (often tied to
marketing arrangements).

15. Standards coordination: an agreement on common or compatible technical standards linking

devices and systems and users of different machines.

16. Joint venture: two or more firms jointly form a company to develop, manufacture, or market
new products.

iii.IMPLIED CONDITIONS

ANS: An implied condition is one which is not expressly mentioned. However, is imputed by law
from the nature of the transaction or the conduct of the parties to have been tacitly understood
between them as a part of the agreement.

It is Fundamental condition enforced by courts, even if it is not expressly included in a contract

document by the contracting parties. In law, an unwritten requirement (that is deemed
important in light of the facts and circumstances of a contract) implies a condition (called
condition precedent) of the contract. For example, if a quantity of umbrellas is ordered to be
delivered before the rainy season but they arrive only after the season has ended, that order may
be cancelable even if the words "Time is of the essence" are not included in the order.

iv.UTILITARIANISM

ANS: Utilitarianism is an ethical theory that states that the best action is the one that maximizes
utility. "Utility" is defined in various ways, usually in terms of the well-being of sentient entities.
Jeremy Bentham, the founder of utilitarianism, described utility as the sum of all pleasure that
results from an action, minus the suffering of anyone involved in the action. Utilitarianism is a
version of consequentialism, which states that the consequences of any action are the only
standard of right and wrong. Unlike other forms of consequentialism, such as egoism and
altruism, utilitarianism considers the interests of all beings equally.

Proponents of utilitarianism have disagreed on a number of points, such as whether actions

should be chosen based on their likely results (act utilitarianism) or whether agents should
conform to rules that maximize utility (rule utilitarianism). There is also disagreement as to
whether total (total utilitarianism), average (average utilitarianism) or minimum[1] utility
should be maximized.

Though the seeds of the theory can be found in the hedonists Aristippus and Epicurus, who
viewed happiness as the only good, the tradition of utilitarianism properly began with Bentham,
and has included John Stuart Mill, Henry Sidgwick, R. M. Hare, David Braybrooke, and Peter
Singer. It has been applied to social welfare economics, the crisis of global poverty, the ethics of
raising animals for food and the importance of avoiding existential risks to humanity.