UNIVERSITY OF CENTRAL PUNJAB

FALL 2020

Course Title: Advance Financial Management

Assignment No. 2
Name of Course Instructor: Muhammad Azfar Ali
Submitted by: Reg
Section: B Program: BS Commerce

Assignment Topic & Details:

Q: Give brief summary on monetary policy and its impact on financial

management of the company.

Q: What is the role of competition commission of Pakistan in merger and

acquisition?
Q: Give brief summary on monetary policy and its impact on financial
management of the company.

Summary
Monetary policy is a central bank's actions and communications that manage the money supply.
The money supply includes forms of credit, cash, checks, and money market mutual funds. The
most important of these forms of money is credit. Credit includes loans, bonds, and mortgages. 
Monetary policy increases liquidity to create economic growth. It reduces liquidity to prevent
inflation. Central banks use interest rates, bank reserve requirements, and the number of
government bonds that banks must hold. All these tools affect how much banks can lend. The
volume of loans affects the money supply.
 The Federal Reserve uses monetary policy to manage economic growth, unemployment,
and inflation. 
 Monetary policy refers to the actions undertaken by a nation's central bank to control
money supply and achieve sustainable economic growth.
 Monetary policy can be broadly classified as either expansionary or contractionary.
 Tools include open market operations, direct lending to banks, bank reserve
requirements, unconventional emergency lending programs, and managing market
expectations.
 It does this to influence production, prices, demand, and employment.
 Expansionary monetary policy increases the growth of the economy, while contractionary
policy slows economic growth. 
 The Fed implements monetary policy through open market operations, reserve
requirements, discount rates, the federal funds rate, and inflation targeting.
The goals of monetary policy, as stated in the Federal Reserve Act of 1913, are to encourage
maximum employment, stabilize prices and moderate long-term interest rates. When
implemented correctly, monetary policy stabilizes prices and wages, which, in turn, leads to an
increase in jobs and long-term economic growth.

objectives of monetary policy

controlling inflation:
Most economists consider this the one true objective of monetary policy. In general, low inflation
is most conducive to a healthy, thriving economy. Therefore, when inflation is on the rise, the
Federal Reserve may adjust monetary policy to reduce inflation.
managing employment levels:
During depressions and recessions, unemployment rates tend to soar. However, monetary
policies also play a major role in unemployment rates. increase in the money supply helps to
stimulate the business sector, which also helps to create more jobs. While there may be no way
to fully achieve true full employment, the goal is to reduce the rate of unemployment among
those who are ready and willing to work for the existing wages.
Balance currency exchange rates:
exchange rates play such a major role in international trade, Central banks have the power to
regulate exchange rates between foreign and domestic currencies. For instance, if the central
bank opts to issue more currency to increase the money supply, domestic currencies become
cheaper than foreign currencies
Types of monetary policy
Contractionary monetary policy: 
This type of policy is used to decrease the amount of money circulating throughout the economy.
It is most often achieved by actions such as selling government bonds, raising interest rates and
increasing the reserve requirements for banks. This method is used when the government wants
to avoid inflation.
Expansionary monetary policy:
The purpose of this type of monetary policy is to increase the money supply within the economy
by completing actions such as decreasing interest rates, lowering reserve requirements for banks
and purchasing government securities by central banks. This type of monetary policy helps to
lower unemployment rates as well as stimulate business activities and consumer spending. It can
also have an adverse effect, occasionally leading to hyperinflation. 

Impact of monetary policy

Interest rate an important indicator of monetary policy always has major impact on financial
sector performance. Interest-rate changes can affect stock prices, which can impact consumer
spending. Changes in short-term interest rates influence long-term interest rates, such as
mortgage rates. Low interest rates mean lower interest expense for businesses and higher
disposable income for consumers. This combination usually means higher business profits.
Lower mortgage rates may spur more home-buying activity, which is usually good news for
the construction industry. Lower rates also mean more refinancing of existing mortgages,
which may also enable consumers to consider other purchases. High interest rates can have the
opposite impact for businesses: higher interest expenses, lower sales and lower profits.

Low and stable inflation provides favorable conditions for sustainable growth and employment
generation over time. It reduces uncertainties about future prices of goods and services and helps
households and businesses to make economically important decisions such as consumption,
savings and investments with more confidence. This, in turn, facilitates higher growth and
creates employment opportunities over the medium term leading to overall economic well-being
in the country.
SBP’s monetary policy strives to strike a balance among multiple and often competing
considerations. These include: controlling inflation, ensuring payment system and financial
stability, preserving foreign exchange reserves, and supporting private investment.

Monetary policy impacts the money supply in an economy, which influences interest rates and
the inflation rate. It also impacts business expansion, net exports, employment, the cost of debt,
and the relative cost of consumption versus saving, all of which directly or
indirectly impact aggregate demand.

Q: What is the role of competition commission of Pakistan in merger and

acquisition?
The Competition Commission of Pakistan (CCP) was established on 2 October 2007 under the
Competition Ordinance, 2007, which was repromulgated in November 2009. Major aim of this
Ordinance was to provide for a legal framework to create a business environment based on
healthy competition for improving economic efficiency, developing competitiveness and
protecting consumers from anti-competitive practices
The procedure adopted by the department for examining the application and issuance of a “No
objection certificate (NOC)” is detailed in the guidelines on merger. The Act gives 30 days for
the completing the first phase review and 90 days if the matter requires a detailed second phase
review.
The Competition Commission of Pakistan (CCP) is an independent quasi-regulatory, quasi-
judicial body that helps ensure healthy competition between companies for the benefit of the
economy.
The review of mergers and acquisitions of shares or assets, including joint ventures, pursuant to
§11 of the Act are among the functions and responsibilities of the Mergers and Acquisitions
Department.
To assist undertakings contemplating a merger or acquisition that desire to get an informal and
non-binding view of the Commission, the department operates the Acquisitions and Mergers
Facilitation Office (AMFO), which plays an advisory role and guides any undertaking or
undertakings that are foreseeing a merger or acquisition activity.
The Commission prohibits abuse of a dominant position in the market, certain types of anti-
competitive agreements, and deceptive market practices. It also reviews mergers of undertakings
that could result in a significant lessening of competition. Combined with its advocacy efforts,
the Commission seeks to promote voluntary compliance and develop a ‘competition culture’ in
the economy.
The law prohibits mergers that would substantially lessen competition by creating or
strengthening a dominant position in the relevant market. The Act requires prior notice of
proposed mergers or acquisitions that meet the notification thresholds stipulated in §4 of the
Competition (Merger Control) Regulations 2007. If the Commission determines this to be the
case, it can prevent mergers or acquisitions, set conditions or require divestitures. The Act does
not distinguish between horizontal and vertical mergers. The term merger in §11 also covers
joint ventures, therefore they are subject to the Commission’s approval provided that they meet
the notification thresholds