Course: Economics for Valuation

29.11.2023
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Sachin Saroa

NMIMS Global Access School for Continuing Education (NGA-SCE)

Internal Assignment Applicable for December 2023 Examination

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Answer to Question No. 1

Because the three nations—Atria (developed), Bellington, and Carlton (developing)—have

various beginning points and conditions, there are differences in the recommendations for

fostering economic growth in each. The following is a review of potential differences in

these countries' approaches to economic growth:

● Atria (Developed Country)

1. With a high GDP per capita and overall, Atria is already a developed nation. Instead

than aiming for rapid expansion, the focus in this situation should be on sustaining

and maintaining stable growth.

2. Put innovation and productivity first in order to stay and become more competitive

in international marketplaces.

3. Invest in technology, education, and research to maintain a highly qualified

workforce that can change with the economy.

4. To draw in investments and generate employment, improve infrastructure and

make sure the atmosphere is business-friendly.

5. As the quality of life becomes increasingly important, take into consideration

measures that support sustainability and well-being.

● Bellington (Developing Country)

1. As a developing nation, Bellington should strive for faster rates of economic growth

in order to overtake more developed countries.

2. Concentrate on developing the fundamental infrastructure, such as energy,

telecommunications, and transportation, to boost connectivity and foster a

business-friendly atmosphere.

3. To boost productivity and human capital, make investments in workforce

development and education.

4. To promote economic diversification, support small and medium-sized businesses

(SMEs) and encourage entrepreneurship.

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5. Allowing foreign trade and investments allows access to new markets and

technologies.

● Carlton (Developing Country)

1. Like Bellington, Carlton should put a strong priority on attaining rapid economic

growth in order to raise living standards and catch up to industrialised countries.

2. Utilise export-focused growth methods to establish an industrial foundation since

manufacturing may stimulate economic expansion and employment creation.

3. To equip the labour market, invest in education and vocational training for the

workers.

4. Enact labour and land market reforms to boost productivity and draw in capital.

5. Maintaining the rule of law and strong governance will help to establish a

predictable and steady business climate.

When analysing the likelihood that Bellington and Carlton would surpass Atria in terms of

per capita income, it's critical to take economic growth theories' definition of "convergence"

into account:

● Convergence Theory

1. According to convergence theory, nations with lower per capita incomes have the

potential to eventually converge as they typically expand at quicker rates than

nations with higher per capita incomes.

2. In this particular environment, it is reasonable to anticipate that Bellington and

Carlton will eventually overtake Atria, assuming they continue to adopt appropriate

policies and sustain consistent economic development.

● Constraints on Convergence

1. Progress can be hampered by a number of variables, therefore convergence is not

guaranteed. These consist of economic disparity, political unpredictability,

institutional flaws, and exogenous shocks.

2. When emerging nations successfully absorb technology and knowledge from

wealthy nations, convergence could occur more quickly.

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In conclusion, because the three nations are at various phases of development, the

recommendations for boosting economic growth would change as well. In terms of per

capita income, Bellington and Carlton might overtake Atria; however, this will rely on how

well their policies work and how well they can handle a variety of social and economic

issues. Although convergence is a likely result, it is not assured and could take some time

to happen.

Answer to Question No. 2

● Benefits of Capital Inflows into BizLand

1. Economic Growth: By providing money for investments in industry, technology,

and infrastructure, capital inflows can promote economic growth. Productivity gains

and the development of jobs may result from this.

2. Enhanced Foreign Exchange Reserves: A spike in foreign investment has the

potential to increase the nation's foreign exchange reserves, which may be utilised

to maintain economic stability, settle external debt, and stabilise the currency.

3. Access to Expertise: Knowledge and experience from foreign investors may

frequently improve home industry and promote innovation. Local firms stand to

gain from this transfer of expertise.

4. Market Expansion: By fostering the growth of new markets and industries, capital

inflows can help a nation become less dependent on a small number of businesses

and widen its economic base.

● The drawbacks of capital inflows for Bizland

1. Exchange Rate Volatility: Significant capital inflows have the potential to quickly

strengthen the home currency, raising the cost of exports and perhaps damaging

regional industry.

2. Asset Price Inflation: When capital inflows increase the price of assets, such stocks

and real estate, they become more expensive for the common person and

exacerbate economic inequality.

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3. Vulnerability to Capital Flight: When investors swiftly pull out of assets during

crises, a fast reversal of capital flows can cause financial instability and economic

downturns.

4. Loss of Control: Because foreign investors may have a large amount of ownership

or influence in crucial industries, relying on foreign investment may result in a loss

of control over important economic sectors.

The Central Bank and Government of BizLand can reduce any hazards by

1. Put Capital Controls in Place: To manage the rate of capital inflows, they might

implement policies such as reserve requirements, levies on foreign investments, or

limits on the repatriation of earnings.

2. Boost Regulatory Structures: Strictly enforce laws to guarantee ethical and

transparent investing, protecting against illegal activity and speculative bubbles.

3. Encourage foreign investors to allocate their resources across several industries

instead than focusing on just one to lessen their exposure to shocks that may affect

a particular industry.

4. Maintaining Fiscal Discipline: To offset any unexpected outflows, increase fiscal

buffers during times of robust capital inflows.

5. Invest in Education and Training: To get the most out of foreign investments, fund

educational and training initiatives that will transfer expertise to the local workforce.

All things considered, BizLand can maximise the advantages of foreign investment while

preserving its long-term growth and economic stability by adopting a balanced strategy

that welcomes capital inflows while taking proactive measures to reduce related risks.

Answer to Question No. 3 (a)

Data protection is one of the many areas of society where government regulation is crucial.

Concerns regarding data privacy and protection have been raised in the last ten years due

to the increased collection and movement of data brought about by the extensive usage of

internet services across several sectors. Governments all throughout the world, including
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the Indian government, are thus investigating and enacting laws to protect personal

information.

For a number of reasons, government regulation becomes significant overall.

1. Protecting individual rights: Without appropriate rules, there is a danger of

unauthorised access, data breaches, and abuse of personal information.

Government regulations guarantee that individuals' rights to privacy and data

protection are protected.

2. Creating legal frameworks: Regulations offer a legal framework that outlines

people's and organisations' rights and obligations with relation to data protection.

This clarity ensures uniformity in the enforcement of data protection practises and

helps to prevent disagreements.

3. Building confidence and trust: Strict laws can help people feel more confident

about the companies that gather and use their data. People are more willing to use

online services and provide personal information when they have faith that their

data is being managed appropriately.

4. Regulations that specify the appropriate reason for gathering and using personal

data can aid in the prevention of data misuse and abuse. Additionally, they set fines

for non-compliance, which serve as a disincentive for businesses that would

otherwise be inclined to use data for illicit or financial advantage.

In the age of internet services, the Indian government understands the value of data

privacy and protection, and it is actively looking at rules to solve this problem. As

technology develops and the volume of personal data exchanged online rises, data

protection regulations are becoming more and more important. The government wants to

make sure that personal information is secure and not misused or exploited by

organisations, therefore it puts in place policies that are effective in protecting individuals'

privacy and security.

In the context of the Data Protection Bill that the Indian government is now

debating, government limitations are important for the reasons listed below:
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1. Individual data protection: In an effort to safeguard personal data, the Data

Protection Bill establishes guidelines for its collection, storage, and use. Controlling

the handling of sensitive personal information is crucial to preventing breaches and

exploitation, since India is home to some of the largest databases of such

information worldwide.

2. Enhancing international data transmissions: As the world becomes more

interconnected today, cross-border data exchanges are becoming more and more

important. The purpose of the law is to create a structure for these transfers.

Respecting established international standards can facilitate secure data flow while

preserving individual privacy.

3. The goal of the proposal is to strike the right balance between anticipating

innovation and protecting individuals' privacy. By providing a clear legal framework,

it provides businesses guidance on how to collect and use data in a way that

respects people's rights and encourages innovation in data-driven industries.

4. Encouraging the digital sector: India's digital economy may flourish with the

support of the Data Protection Bill, which fosters customer confidence and trust in

online businesses. People who feel their data is adequately protected are more

likely to participate in the digital economy and do more business online.

Government rules are necessary for the precise reasons listed above: protecting personal

data, facilitating cross-border data flows, balancing privacy and innovation, and bolstering

the digital economy.

In order to protect people's rights, create legal frameworks, foster trust, stop data misuse,

and support the expansion of the digital economy, government regulation—both generally

and specifically with regard to data protection—is essential. The Indian government's

investigation of the Data Protection Bill is indicative of this awareness of the needs in light

of India's complex digital environment.

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Answer to Question No. 3 (b)

An increase in domestic interest rates, as announced by the Central Bank of a country, can

have several impacts on the country's economic growth. The specific effects depend on the

broader economic context, but here are some general considerations:

1. Effect on Borrowing Costs: Generally speaking, higher interest rates result in

higher borrowing costs for individuals and enterprises. While consumers may pay

more for mortgages, vehicle loans, and other credit, businesses may find it more

costly to finance expansion and investments. This may lower borrowing and maybe

cause the economy to contract.

2. Consumer Spending: A rise in interest rates may result in higher variable-rate loan

monthly payments, which would take away from consumers' disposable income.

This might thus result in lower consumer spending, which is a major factor in the

expansion of the economy.

3. Company Investment: As project finance costs rise, higher interest rates may deter

company investments. Businesses could postpone or reduce capital investments,

which might have a detrimental effect on economic expansion.

4. Home Market: As mortgage rates rise in response to higher interest rates, home

becomes less affordable. A downturn in the housing market might result from this,

which would affect the real estate, construction, and allied businesses.

Exchange Rates: Foreign money seeking better yields may be drawn to the country as

domestic interest rates rise. This may cause the value of the national currency to increase,

increasing the cost of imports and decreasing the cost of exports. Economic development

and export-oriented businesses may suffer from a higher currency.

1. Inflation: One strategy to counteract inflation is to raise interest rates. It can aid in

reducing inflationary pressures by raising the cost of borrowing money. Price

stability may benefit from this, but if inflation is not a major worry, economic growth

may be slowed down.

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2. Investor Attitude: An increase in interest rates may indicate that the central bank

is worried about inflation or an overheated economy. This may have an impact on

investor mood and maybe influence how they behave while making investments.

3. Income and Savings: Those who earn more from their fixed-income assets and

savings may find that higher interest rates are advantageous. For some households,

this might mean more savings and financial security, but it can also mean less

money available for borrowers to spend.

It is noteworthy that the effect of an increase in interest rates on economic growth is not

constant and might differ based on the general state of the economy, the extent of the rate

hike, and the degree to which the increase is consistent with the policy objectives of the

central bank.

The Central Bank's decision to raise domestic interest rates can have a variety of effects on

a nation's economic expansion. It frequently has an impact on interest rates, currency

rates, inflation, savings, consumer spending, company investments, the property market,

and investor sentiment. The specific repercussions are contingent upon the overall state of

the economy and the goals of the central bank's policy. It is essential to give careful

thought to these elements when evaluating how interest rate fluctuations affect economic

expansion.