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International Business Environment
Question Bank – (Previous Year Solved Question Papers)
Question Paper—June, 2019 (Solved) 1-4
Question Paper—December, 2018 (Solved) 1-2
S.No. Chapterwise Reference Book Page

S.No. Chapter Page
( Solved )
Time: 3 Hours ] [ Maximum Marks: 100
Note: Answer both the parts.
Part-A problems, pricing difficulties and culture collisions

Q. 1. Comment on the following statements: are not uncommon, especially in the beginning. The
(a) Theory of Comparative Advantage provides company must be able to handle these difficulties
the basis for international trade. in a way that is satisfying also for the other part. It
Ans. Ref.: See Chapter-2, Page No. 15, is important, even before entering the foreign
‘Theory of Comparative Advantage’. country, to inform the personal about the manners
(b) Trade policy is an important instrument to and custom in that new culture. Culture can be both
regulate foreign trade. a positive and negative influence and many
Ans. Trade policy refers to policy adopted by a companies are struggling in the new and foreign
country with reference to exports and imports. Trade policy environment. The important thing to always have in
can be free trade policy or protective trade policy. A free mind is that the foreign culture is not as we are used
trade policy is one which does not impose any restriction to at home and to be prepared before starting the
on the trade of goods and services between different new foreign cooperation. By learning the host
countries. A free trade policy involves complete absence country’s language can respect and trust more easily
of tariff and non-tariff barriers e.g. tariffs, quotas, exchange be won, and competitive advantages can arise.
restrictions, taxes and subsidies on production, factor use (d) While corporate social responsibility
and consumption. Though free trade offers several focuses primarily on business policy issues, ethics
advantages, in reality particularly underdeveloped and focuses on individual managerial behaviour.
developing countries were at a disadvantage in such a Ans. Ref.: See Chapter-19, Page No. 282,
system of international trade. As a result, in the early 20th ‘Business and Social Responsibility’ and ‘Ethical
century. International economy saw the emergence of Responsiblity’.
protective trade polices. A protective trade policy pursued (e) International capital flows do not
by a country seeks to maintain a system of trade restrictions strengthen the process of globalization.
with the objective of protecting the domestic economy Ans. International capital flows has strengthen
from the competition of foreign products. Protective trade the process of globalisation. International capital
policy has been pursued by underdeveloped countries. flows are the financial side of international trade.
(c) Culture cannot be easily isolated from factors For the past several years, international capital flows
such as economic and political conditions and
offers the rise in money supply and liquidity along
institutions.
the cross border of nation due to increase in
Ans. The number of companies operating
liberalization in economic policy. It has increase
internationally is growing constantly. The world is
foreign direct invesment also, which further
opening up for foreign firms and new destinations in
accelerate the process of globalization.
the company. Business are increasing when going
(f) Services do not occupy an important place
international the challenges the company must handle
in Indian economy.
are new and unfamiliar culture is one of these obstacles
and can affect the entire co-operation. Culture can Ans. Ref.: See Chapter-18, Page No. 269,
influence the business in different ways. Language Indian Perspective’.
2 / NEERAJ : INTERNATIONAL BUSINESS ENVIRONMENT (JUNE-2019)
Part-B tent to contract who is of the age of majority

Q. 2. What are the key features of Foreign according to the law to which he is subject and
Direct Investment (FDI) in India? Distinguish who is of sound mind, and is not disqualified
between Direct and Portfolio investments, clearly from contracting by any law to which he is sub-
pointing out their respective key characteristics. ject.’
Ans. Ref.: See Chapter-6, Page No. 75, (v) Lawful Consideration: The agreement must be
‘Foreign Direct Investment in India’, Page No. 79, based on a consideration. Consideration means
Q. No. 16 and Page No. 83, Q. No. 21. something in return. In other words, it is the price
Q. 3. Distinguish between an agreement and a paid by one party to buy the promise of the other.
contract. Also describe essential elements of a valid The consideration may be past, present or fu-
contract. . ture, however it must be real.
Ans. Ref.: See Chapter-14, Page No. 204, (vi) Lawful Object: An agreement which is made
Q. No. 2 and Q. No. 1. for any act which is prohibited by law is not valid.
Also Add: Section 10 provides for the essential That is the object of an agreement must be law-
elements for a valid contract, which include: ful.
(i) Proper Offer and Proper Acceptance: There (vii) Agreements not Expressly Declared Void:
must be atleast two parties in order to create a Sections 24 to 30 clearly specify certain types
valid contract, one making the offer and the other of agreements which have been expressly de-
accepting it. Such offer and acceptance must be clared void.
valid. The law has laid down specific rules for (viii)Certainty of Meaning: The terms of the con-
making the offer and its acceptance, that is, it tract must be certain and unambiguous. As per
must be absolute and unconditional. Section 29 of the Indian Contract Act, ‘agree-
(ii) An Intention to Create Legal Relationship: ments the meaning of which is not certain or ca-
The agreement must be capable of creating legal pable of being made certain are void.’
obligation among the parties. It does not that it is (ix) Possibility of Performance: The terms of the
not a contract. As in case of social or domestic agreement must be such are capable of perfor-
agreements the usual presumption is that the par- mance. According to Section 56, ‘An agreement
ties do not intend to create legal relationship how- to do an impossible act is void.’
ever in commercial or business agreements, the (x) Legal Formalities: The agreement must comply
usual presumption is that the parties intend to with the required formalities as to writing, regis-
create legal relationship unless otherwise agreed tration, stamping, etc. So necessary to make it en-
upon. forceable at law.
(iii) Free Consent of the Parties: It is essential that Q. 4. Discuss the importance of political en-
there must be free and genuine consent of the vironment in international business. Explain and
parties to the contract so as to create a valid con- give suitable illustrations in support of your an-
tract. According to Section 14, Consent is said swer.
to be free when it is not caused by: Ans. Getting acquainted with how politics and
(a) coercion; law effect business activities around the world is a
(b) undue influence; critical concern of today’s successful global
(c) fraud; organizations. In the past ten years, there have been
(d) misrepresentation, and substantial political changes around the world that
(e) mistake. The contract is voidable at the have shaped business operations. New markets have
option of the aggrieved party if the con- opened, old ones have closed and the level of
sent is obtained by any of the above four uncertainty that exists presents many marketing
factors. challenges.
(iv) Capacity of Parties: The parties to the contract Stability of Government Policies: Although the
must be capable of entering into a contract. The preffered political climate for a global firm is stable
contract is not valid if any of the parties in not and friendly. Organizations may still profit and
competent to contract. According to Section 11 succeed in traditionally unfavourable conditions. The
of the Act, states that, ‘Every person is compe- most important idea is that the government is stable
SOLVED QUESTION PAPER (JUNE-2019) / 3
and the set of rules or codes of behaviour that effect (a) The Montreal Protocol
business are predictable and adaptable. Ans. Ref.: See Chapter-17, Page No. 258,
There are five main political causes of instability ‘Montreal Protocol’.
that affect the international market: (b) The Basel Convention
Changes in ruling political parties. Ans. Ref.: See Chapter-17, Page No. 258,
Some forms of government seem to be ‘The Basel Convention’.
inherently unstable. Q. 6. How does the home country
Trade disputes. environment influence foreign business
Anionsity targetted towards specific operations of a firm? Explain
countries. Ans. Ref.: See Chapter-1, Page No. 8,
Extreme nationalism. Q. No. 18.
A foreign business firm operates only as a guest Q. 7. What is balance of payments? How does
and at the convenience of the host country disequilibrium occur in balance of payments?
government. The government reserves the right of Describe the methods of correcting the
allowing a foreign firm to operate in the country as disequilibrium.
well as laying down the manner in which a foreign Ans. Ref.: See Chapter-3, Page No. 32,
firm can conduct business. To gain an insight into a Q. No. 23 and Page No. 35, Q. No. 27.
foreign country’s political environment, one needs Q. 8. Write short notes on the following:
to analyse factors such as current form of (a) Terms of Trade
government and political party system, role of Ans. Ref.: See Chapter-2, Page No. 25,
government in the economy, political encouragement Q. No. 21(i).
to foreign firms, political stability, and political risks (b) International Finance Corporation
to business. Hence, political environment plays a Ans. Ref.: See Chapter-13, Page No. 187,
significant role in international business. ‘International Finance Corporation (IFC)’.
Government in a foreign country can be either (c) Global Trade Point Network (GTPN)
parliamentary or absolutist. While the parliamentary Ans. Ref.: See Chapter-20, Page No. 300,
type of government is run by people’s representatives ‘Global Trade Point Network (GTPN)’.
selected from time to time, the absolutist government (d) Non-Tariff Barriers
assumes the few of absolute monarchies or Ref.: See Chapter-4, Page No. 43,
dictatorships, and only a select few make policies Q. No. 6.
for international business. Besides political party Also Add: Following are various non-tariff
system, one must have knowledge about the political barriers to restrict the international trade:
ideology and government attitudes toward foreign (1) Quotas: Quotas are quantitative restrictions
business and investment. In addition to regulatory quotas may be of following types:
role, government itself can be directly involved in (a) Import Quotas: Import quotas are
business. In such cases, government enterprises quantitative restrictions on the volume of goods
emerge as dominant players in the market and pose imported. Import quotas require import licenses to
tough competition to the foreign firms. Even be obtained by individual traders. Import quotas may
supplying goods and services to the agencies is not be unilateral quotas, negotiated bilateral or
hassle free. Because of monopsonic power of the multilateral quotas and tariff quotas.
government organisations, it becomes quite arduous Unilateral quota is imposed and administered
to negotiate prices and other terms with them. Also, by the importing country. It may be with reference
International firms need a proactive approach to deal to the total volume to be imported or with reference
with political risks. An effective management of risks to the quota assigned to individual countries from
calls for recognising the existence of various kinds which the quota can be imported.
of political types of risks and their consequences, Negotiated bilateral or multilateral quotas ease
and developing appropriate plans and policies to deal the administrative as well as political difficulties of
with such risks. unilateral quotas. The importing country negotiates
Q. 5. Discuss the following multialteral with the concerned countries about the allotment of
environnment agreemnts: quotas by definite shares.
Tariff quota is a specified quantity of a product with respect to safety, health, marking, labelling,
which is permitted to enter the country at a given packaging and technical standards, quality standards
rate of duty or even duty free. Any additional quantity and natural environment. Such type of regulations and
that may be imported, may pay a higher duty. Thus, standards discriminate against imports by posing
a tariff quota combines the features of both a tariff hardships on foreign producers and obstruct the flow
and a quota. of foreign goods into the country.
(b) Export Quotas: Export quotas are also (5) Anti-dumping Restriction: Dumping
administered by licensing. Export quotas are means that a product is sold in foreign market at a
quantitative restrictions by governments to prevent lower price than it is sold in exporting country’s
strategic goods from reaching the hands of an enemy market. To counter such practice the government of
country, to meet internal demand or to permit export importing country may impose anti-dumping
of only surpluses to achieve production and price regulations. A government may impose anti-dumping
stability. Export quotas can be imposed unilaterally, duty to nullify the harmful effects of the lower
bilaterally or multilaterally negotiated with importing dumping price on domestic producers.
countries. (6) Government Procurement: Sometimes a
(2) Customs Classification and Valuation: government may adopt a policy to give preference to
There may be government policies and administrative domestically produced goods. Almost all countries
practices that also discriminate against imports or practice procurement discrimination through
discriminate in favour of exports. They may be either administrative procedures. Such type of policy
by way of discriminatory taxes and valuations for discriminates in favour of local goods against foreign
the purpose of customs clearances. When a tariff is goods. The very large number of goods and services
ad valorem, the duty imposed on imported goods directly purchased by governments and enormous
depend on its classification in the tariff schedule. influence they can exert over the procurement policies
Ambiguous rules of classification provide custom of public sector and private sector.
authorities plenty of opportunity for arbitrary (7) Local Content and Foreign Investment
classification and determining value of imported Performance Requirement: A government may
goods. impose local content regulations on certain industries
(3) Subsidies: Another form of non-tariff so as to promote import substitution. Sometimes a
barrier is grant of subsidies to domestic producers government may also encourage the domestic
or exporters to stimulate the expansion of indigenous producers for import substitution. Under this, a certain
industry. Subsidies may be granted by way of tax percentage of inputs used in the manufacture of goods
exemptions, cash, disbursements, preferential are required to be procured from the domestic
exchange rates, government contracts with special suppliers only. Similarly, foreign investors may be
privileges or some other favourable treatment. asked to export a certain proportion of its output from
Subsidies help local manufactures to enjoy cost the domestic country under the foreign investment
advantage and to be cost competitive. Government performance requirement.
provides a number of export assistance to exporters (8) Regulations on Services: Countries all-
to make the export business more profitable. Subsidy, over the world impose restrictions to curtail trade in
for all practical purposes, is an indirect form of services e.g. banking, transportation, communication,
protection of local industry. tourism, education, franchising, construction etc.
(4) Technical Standards and Health Restrictions on international trade in services distort
Regulations: An other form of non-tariff barrier is the location of service activities and add to their costs.
imposition by importing country of many regulations
( Solved )

Note: Answer both Part-A and Part-B as per instructions.
Part-A economic transactions but also with an organization

Q. 1. Comment on the following statements : of economic activities which straddles national
(a) “Trade policy is an important instrument boundaries. Globalisation at world level refers to
to regulate the foreign trade”. growing economic interdependence among
Ans. Trade policy refers to policy adopted by a countries.
country with reference to exports and imports. Trade (c) “Intellectual Property Rights have
policy can be free trade policy or protective trade policy. become an important issue in International
A free trade policy is one which does not impose any Business scenario”.
restriction on the trade of goods and services between Ans. Ref.: See Chapter-8, Page No. 110,
different countries. A free trade policy involves complete ‘Intellectual Property Rights’.
absence of tariff and non-tariff barriers e.g. tariffs, quotas, (d) “The ethical codes should not be too
exchange restrictions, taxes and subsidies on production, vague or too detailed”.
factor use and consumption. Though free trade offers Ans. The ethical codes should not be too vague
several advantages, in reality particularly underdeveloped
or too detailed but it should address both the
and developing countries were at a disadvantage in such
a system of international trade. As a result, in the early particular nuances of the company’s industry as well
20th century. International economy saw the emergence as its broader goals for social responsibility and
of protective trade polices. A protective trade policy should be concrete enough to serve as a guide for
pursued by a country seeks to maintain a system of trade employees in a quandary without laying out rules
restrictions with the objective of protecting the domestic for every situation that could arise. A review of
economy from the competition of foreign products. various pressures on major player in international
Protective trade policy has been pursued by trade shows the need to clearly lay down guidelines,
underdeveloped countries. in form of code ethics, for their employees. Such
Q. (b) “Globalisation refers to the absence of code of ethics should lay down guidelines for
borders and barriers to trade between countries”. operating in various markets, particularly focussing
Ans. Globalization at the macro level means on places where unethical behaviour is more
globalization of world economy. Globalization of the common. However, as the player have been more
world economy is achieved by globalising the national concerned with growth and development of their
economies. Globalization at macro level means a
business, the code of conduct has been emphasised
process of the development of the world into a single
and laid down by outside agencies such as OECD,
integrated economic unit. A global economy is a border-
less world economy characterized by free flow of trade International Chamber of commerce, International
and factors of production across national borders. A Labour Organisation and UN Committee on
global economy transcends the national borders Transnational Corporations. These codes address
unhindered by artificial restrictions. issues related to MNCs and their stakeholders such
Globalisation is associated not only with a as host government, the public, consumers and
phenomenal spread and volume of cross border employees.
2 / NEERAJ : INTERNATIONAL BUSINESS ENVIRONMENT (DECEMBER-2018)
(e) “Understanding of new technology is Ans. Ref.: See Chapter-3, Page No. 32,
essential for new product development”. Q. No. 23 and Page No. 35, Q. No. 27.
Ans. New Product Development (NPD) is the Q. 4. Distinguish between tariff and non-tariff
process of bringing a new product to the marketplace. barriers. Explain various non-tariff barriers in the
In the international business scenario, it is required International Trade.
to experiment with the new technology for the product Ans. Ref.: See Chapter-4, Page No. 45,
development due to changes in consumer preferences, Q. No. 19.
increasing competition and advances in technology Q. 5. Explain the following:
or to capitalise on a new opportunity. Technology (a) Electronic Data Interchange (EDI)
normally implies a way of producing goods or Ans. Ref.: See Chapter-20, Page No. 299,
establishing services; it manifests itself in production ‘Electronic Data Interchange (EDI)’.
process. The buyers of technology are a large number (b) Global Trade Point Network (GTPN)
of firm specially from developing countries. The Ans. Ref.: See Chapter-20, Page No. 300,
transfer of knowledge is becoming more important ‘Global Trade Point Network (GTPN)’.
and involves acquiring new skills and technical and Q. 6. Write explanation note on the following:
organisational capabilities. Thus, understanding of (a) Free Trade and gains from trade.
new technology is essential for the new product Ans. Ref.: See Chapter-2, Page No. 25,
development. Q. No. 21 (ii).
(f) “Fluctuations in exchange rates affect the (b) Terms of Trade.
profitability of not only exporting/ importing firms Ans. Ref.: See Chapter-2, Page No. 25,
but also purely domestic firms”. Q. No. 21 (i).
Ans. Each country’s currency is valued in terms (c) General Agreement on Trade in Services
of other currencies through the use of exchange rates, (GATS).
so that currencies can be exchanged to facilitate Ans. Ref.: See Chapter-18, Page No. 273,
international transactions, The values of most Q. No. 15.
currencies can fluctuate over time because of market (d) Regionalism versus Multilateralism.
and government forces, If a country’s current account Ans. Ref.: See Chapter-11, Page No. 160,
balance decreases, other things being equal, goods ‘Regionalism Versus Multilateralism’ and Page No.
exported by the country will become more expensive 166, Q. No. 18.
to the importing countries, if its currency strengthens, Q. 7. Explain the structure and functions of
as a consequence, the demand for such goods will WTO. Is the WTO helpful to international business
decline. So the fluctuations in the exchange rates or is it a hindrance ? Give your precise opinion.
affect the profitability of not only exporting or Ans. Ref.: See Chapter-10, Page No. 140,
importing firms but also purely domestic firms. ‘Structure of WTO’, Page No. 132, ‘Functions of
Part-B WTO’ and ‘Role of WTO’.
(Attempt the following questions from this part): Q. 8. (a) Explain the role of transfer of
Q. 2. Critically examine the Modern Theory technology in International trade.
of International Trade. Ans. Ref.: See Chapter-8, Page No. 111,
Ans. Ref.: See Chapter-2, Page No. 23, Q. No. 1 and Page No. 114, ‘Recent Trends’, (Q. No. 18).
Q. No. 19. (b) Discuss the recent trends and current issues
Q. 3. What is Balance of Payments? How does in technology transfer.
disequilibrium occur in Balance of Payments? Ans. Ref.: See Chapter-8, Page No. 114,
Describe the methods of correcting the Q. No. 18. (Recent Issues in Technology Transfer).
disequilibrium.
( Solved )

Weightage: 70%
Part-A (b) ‘Free trade is always better than no

Q. 1. Comment on the following statements, trade’.
giving reasons in support of your answer. Ans. This is the same argument that was made
(a) ‘Basic functions, processes and techniques in Post-WWI Germany. “In other cases, one country
of international business are essentially the gains at the expense of another. In some cases trade
same as those involved in domestic is worse than no trade.” That was the same rationale
business’. Germany used to invade it’s neighbours: to “Achieve
Ans. Domestic or internal business is carried within their individually best outcome.” Well, of course, the
the geographical limits of a country while international robber is worse off if he is prevented from taking by
business is carried outside the geographical limits of a force the property of another.
country i.e. between two countries. Every business, First off, PCR lacks a fundamental
whether domestic or international, operates within an understanding of what trade is and why it occurs.
environment. The term ‘environment’ refers to the Trade is not based on the principle of comparative
totality of all the factors, which are external and beyond advantage of factors of production costs. Division
the control of individual business enterprises. Although of labour is based on the principle of comparative
basic functions, processes and techniques of domestic advantage of factors of production costs. Trade is
as well as international business are essentially the same, fundamentally based on both parties to a trade both
the environment of international business differs from increasing their subjective utilities from the
environment of domestic business. The environment of exchange. Otherwise, trade would not occur, no
international business is an extremely complex matter what the comparative factors of production
phenomenon. The environmental factors vary from costs. He substitutes his own personal subjective
country to country. Hence, one cannot operate valuation of what is “important” industry and
international business without thinking about erroneously conceptualizes subjective individual
environment. perferences as objectives preference policy goals of
Now we shall focus on the meaning, nature and countries.
relevance of the international business environment. We Conflict is inherent in international trade only
shall also highlight various aspects of international from the point of view of various governments
business environment such as geographical, economic, competing with force against each other to alter the
financial , socio-cultural, legal and ecological aspects. working of the free market. By definition of trade,
Since the environment is the sum total of the people are worse off, when they are artificially
history, geography, culture, sociology, politics and prevented from doing so. Some may be better off as
economics of a country, the environmental factors the robber is better off after completing the theft
generally vary from country to country. The environment Foreign “cheap labour” workers are portrayed as
that is typical of India may not be found in other somehow less deserving or less human than domestic
countries like the USA, UK and Japan. high wage workers.
(c) ‘The concept of trade’ in services is not government forces. If a country’s current account of
as straight forward as the concept of ‘trade in balance of payment decreases, other things being
goods.’ equal, goods exported by the country will become
Ans. Concept of trade in services or invisible more expensive to the importing countries. If its
trade is not as straight forward as the concept of trade currency strengthens, as a consequence, the demand
in goods. While the goods can be supplied or for such goods will decline.
transported abroad, services by nature need to be (f) ‘New technologies do not lead to
delivered on the spot, and in most cases, it require a economies in the use of raw materials.’
close proximity between the service provider and Ans. Technology has become one of the most
consumers. Movement of labour and capital (usually important element of the competitiveness. In modern
in the form of foreign direct investment), therefore, production activities, competitiveness entails new,
becomes the major mode of supply of services in the more rapid product innovation, flexible response,
international context. Whether movement of capital greater networking and closely integrated production
and labour and such factor incomes are part of trade across firms and regions. Introduction of new
in services or not have for a long time remained a technologies has led to economies in the use of raw
controversial issue. While the most developed materials. Technological advancement has helped
countries have been of the view that capital movement businesses and organizations save time and cost of
is a legitimate mode of trade in services, developing production, which has been an advantage to all
countries in general have objected to this contention, business, they manage these advancements to gain
and have instead demanded inclusion of movement competitive advantage.
of labour as an alternative mode of trade in service. PART-B
(d) ‘Law of contract is not applicable to Q. 2. Why do firms engage in international
international contracts.’ business? What are the major cultural factors that
Ans. The importer and exporter are related affect international business? Give suitable
contractually to each other. The exporter-importer illustrations in support of your answer.
Ans. Firms engage in international for a variety
relationship becomes legal and binding. Such
of reasons, but the goal is typically growth or
contractual relationships are subject to the limits of
expansion. Every firm are dependent on consumers’
various laws and regulations framed there under. All
interest in product and services and the consumers’
domestic contracts are governed by or subject to
willingness and ability to buy them. The firms can
domestic (national) commercial laws which
expand their sales by approaching the international
automatically apply to both parties. But in case of
business. Manufacturers and distributors of firms look
international contracts, importer and exporter belong
for foreign capital, technology and information that
to different countries. In the absence of an acceptable
they can use at home to reduce costs. Sometimes firms
international trade law applicable to international
operate abroad to acquire something which is not
contracts, the national laws apply either by express readily available at home country so as to improve
or implied choice or selection or in the absence of the cost and product quality. Firms seek foreign
such choice by the law of the principal place of markets to minimize their risks in sales and profits
business of the exporter whose performance is the arising of business cycle i.e. recession and expansions,
characteristic of the contract. which occur differently in different countries. Firms
(e) ‘Exchange rates do not influence current often go international to find alternative sources of
account of balance of payments.’ labour. Labour in developing countries is much
Ans. Exchange rates do not influence current cheaper when compares to developed countries,
account of balance of payments because each labour cost has a direct impact on the cost of
country’s currency is valued in terms of other production which affects the bottom line of the
currencies through the use of exchange rates, so that companies. Some firms look to international countries
currencies can be exchanged to facilitate international for lower-cost manufacturing, technology assistance
transactions. The values of most currencies can and other services in order to maintain a competitive
fluctuate over time because of market and advantage.
Also Add: Ref.: See Chapter-1, Page No. 10, (c) Global Trade-Point Network (GTPN)
Q. No. 21. Ans. Ref.: See Chapter-20, Page No. 300,
Q. 3. Briefly explain the major issues in the ‘Global Trade Point Network (GTPN)’.
settlement of international trade disputes. (d) Non-tariff Barriers.
Discuss the role of International Chamber of Ans. Ref.: See Chapter-9, Page No. 130,
Commerce (ICC) in this regard.
‘Tariff and Non-Tariff Barriers’.
Ans. Ref.: See Chapter-16, Page No. 244,
Q. No. 17 and Q. No. 18. Q. 7. Describe the various forms of Regional
Q. 4. Evaluate the advantages and Economic Groupings? Discuss the impact of
disadvantages of FDI. Explain the role of FDI in Regional Economic Groupings.
the economic development of the host country. Ans. Ref.: See Chapter-11, Page No. 157,
Ans. Ref.: See Chapter-6, Page No. 81, ‘Forms of Regional Grouping’ and Page No. 160,
Q. No. 20. ‘Impact of Regional Economic Grouping’ .
Q. 5. Describe the various unethical practices Q. 8. (a) What are the challenges that
prevailing in International Trade. globalization poses for the Indian economy?
Ans. Ref.: See Chapter-19, Page No. 288, Ans. Ref.: See Chapter-5, Page No. 68,
Q. No. 27. Q. No. 16 (Obstacles to Globalization).
Q. 6. Write explanatory notes on the
(b) Describe the Multi-lateral Trade
following:
Agreements relating to: (i) agriculture, and (ii)
(a) Terms of Trade
Ans. Ref.: See Chapter-2, Page No. 25, textiles and clothings.
Q. No. 21 (i). Ans. Ref.: See Chapter-10, Page No. 133,
(b) International Finance Corporation ‘Uruguay Round Agreements’, Page No. 144, Q. No.
Ans. Ref.: See Chapter-13, Page No. 187, 17, (Agreement on Agriculture) and Page No. 145,
‘International Finance Corporation (IFC)’. ‘Agreement on Textiles and Clothing’.
( Solved )

Weightage: 70%
Note: Answer both Part-A and Part-B as per instructions. Marks have been indicated for both parts.
Part-A (c) Understanding of new technology is

Q. 1. Comment on the following : essential for new product development.
(a) Culture cannot be easily isolated from such Ans. Today, we are living in the era of
factors as economic and political conditions and technology. Technology is universally applied in all
institutions. walks of life. Technology means physical goods i.e.
Ans. Ref.: See Chapter-1, Page No. 2, capital goods and transfer of tacit knowledge. With
‘Socio-Cultural Environment’. reference to production, technology means a way of
Also Add : The number of companies operating producing goods or services. It implies that
internationally is growing constantly. The world is technology is related to production process and
opening up for foreign firms and new destinations in production development. Modern Concept of
the company. Business are increasing when going Technology is more comprehensive in the sense that
international the challenges the company must handle it includes organizational, informatory and motivatory
are new and unfamiliar culture is one of these obstacles areas.
and can affect the entire co-operation. Culture can According to the UNCTAD’ Draft TOT code
influence the business in different ways. Language “Technology should be described as systematic
problems, pricing difficulties and culture collisions are knowledge for the manufacture of a product, for the
not uncommon, especially in the beginning. The application of a process or for the rendering of a
company must be able to handle these difficulties in a service and does not extend transactions involving
way that is satisfying also for the other part. It is mere sale or lease of goods.” Technology includes
important, even before entering the foreign country, the tools-both machines (hard technology) and ways
to inform the personal about the manners and custom of thinking (soft technology) available to solve
in that new culture. Culture can be both a positive and problems and promote progress between, among and
negative influence and many companies are struggling between societies. Technology includes not only
in the new and foreign environment. The important knowledge or methods that are necessary to carry on
thing to always have in mind is that the foreign culture or to improve the existing production and distribution
is not as we are used to at home and to be prepared of goods and services buy also entrepreneurial
before starting the new foreign cooperation. By expertise and know-how.
learning the host country’s language can respect and Also Ref.: Chapter-8, Page No. 112, Q. No. 7.
trust more easily be won, and competitive advantages (d) The purpose of a trade theory is to explain
can arise. the pattern of trade between two countries.
(b) If a country’s inflation rate increases in Ans. International trade is the bye-product of
relation to the countries with which it trades, its laissez faire in the world economy. It has improved
current account would be expected to increase. the well-being of many countries. In this context, it
Ans. Ref.: See Chapter-3, Page No. 34, is pertinent to understand the determinants of and the
‘(1) Inflation Rate in the Domestic Economy’. effects of international trade on the trading partners
and the economics of the home and host countries. Ans. Ref.: See Chapter-3, Page No. 34,
Several theories have been formulated from time to Q. No. 26.
time which form the bases of international trade. (b) Explain methods of correcting
Following are the objectives of trade theories: disequilibrium in the balance of payments.
(i) The first objective of trade theories is to Ans. Ref.: See Chapter-3, Page No. 35,
explain the pattern of trade between two Q. No. 27.
countries. Q. 3. Critically examine the Modern Theory
(ii) The second objective of trade theories is to of International Trade.
explain the pattern of specialization of a Ans. Ref.: See Chapter-2, Page No. 23,
country. Q. No. 19.
(iii) The third objective of trade theories is to Q. 4. (a) Why do firms become transnational?
emphasize that trade is always better than Give your arguments.
no trade. Ans. Ref.: See Chapter-7, Page No. 97,
(e) Trade policy is an important instrument to Q. No. 12.
regulate the foreign trade. (b) Discuss the issues and controversies of
Ans. Trade policy refers to policy adopted by a Transnational Corporations.
country with reference to exports and imports. Trade Ans. Ref.: See Chapter-7, Page No. 100,
policy can be free trade policy or protective trade policy. Q. No. 17.
A free trade policy is one which does not impose any Q. 5. What are the key features of Foreign
restriction on the trade of goods and services between Direct Investment (FDI) in India ? Distinguish
different countries. A free trade policy involves complete between Direct and Portfolio investments, clearly
absence of tariff and non-tariff barriers e.g. tariffs, quotas, pointing out their respective key characteristics.
exchange restrictions, taxes and subsidies on production, Ans. Foreign Direct Investment in India
factor use and consumption. Though free trade offers At the time of independence, the attitude
several advantages, in reality particularly underdeveloped towards foreign direct investment was one of fear and
and developing countries were at a disadvantage in such suspicion. As a result, India adopted a policy of
a system of international trade. As a result, in the early selective foreign direct investment. As a result flow
20th century. International economy saw the emergence of FDI into India was very limited. However, with
of protective trade polices. A protective trade policy the announcement of new Industrial Policy in July
pursued by a country seeks to maintain a system of trade 1991, there developed a favourable climate for inflow
restrictions with the objective of protecting the domestic of FDI in India.
economy from the competition of foreign products. The Industrial Policy of 1991 encouraged
Protective trade policy has been pursued by foreign direct investment in India. The salient features
underdeveloped countries. of the policy are as follows:
It is an established fact that for all countries free (1) Approval will be given for foreign direct
trade is always better than autarky. Even then, some investment upto 51% foreign equity in high
governments adopt a policy of restricted trade i.e. trade priority industries.
subject to different types of barriers. (2) Dividend payments will be monitored by
(f) Intellectual Property Rights have become the RBI. This is to ensure a balance
an important issue in current international between outflows and export earnings.
business Scenario. (3) Foreign equity holdings upto 51% equity
Ans. Ref.: See Chapter-8, Page No. 110, will be allowed for trading companies. This
‘Intellectual Property Rights’ and ‘International is to provide access to international
Agreements for Intellectual Property Rights’. markets.
PART - B (4) Automatic permission will be given for
Answer the following questions : foreign technology agreements in high
Q. 2. (a) Describe factors affecting the balance priority industries upto a lump sum
of payments. payment of Rs. 1 crore.
SOLVED QUESTION PAPER (DECEMBER-2017) / 3
Additional measures were taken in 1992-93 to Collection/dissemination of information by

further encourage foreign direct investment: the Government/its agencies should be
(1) The dividend balancing condition streamlined to help exporters about the
(condition 2 above) is removed except for requirements of the foreign markets;
consumer goods industries. There should be enhanced cooperation
(2) Existing companies with foreign equity can between the exporting community and the
raise it to 51% subject to fulfilment of Government and other business related
certain conditions. players.
(3) NRI investment upto 100% of equity is There should be proper coordination
allowed in export houses, trading houses between governmental agencies at Central,
hospitals, sick industries, hotels, tourism etc. State and other lower levels.
(4) FDI has been allowed in exploration, Policies devised for export promotion
production and refining of oil. Private should include short term as well as long
investment is allowed in power sector also. terms policies.
(5) Disinvestment of equity by foreign investor Government should initiate steps for
is allowed on stock exchanges at market enhancing domestic enabling environment
rates. Earlier the price was determined by for potential exporters by providing
the RBI. infrastructure, credit facilities, access to
(6) Provisions of FERA have been amended to insurance and other required facilities/
treat companies with more than 40% equity information.
at par with fully Indian/owned companies. Government should also initiate steps for
(7) Foreign companies are allowed to use their improving image of the country in other
trade marks on domestic sales. countries to promote an export friendly
It is, thus, clear that government is promoting environment.
the inflow of foreign capital by offering a large number Wherever required, more institutional
of concessions. As a result of these measures Foreign support be provided to exporters and
direct investment has increased substaintially in the potential exporters.
last one decade or so. Level of economic growth of the country by
Also Ref.: Chapter-6, Page No. 77, Q. No. 1 and promoting research and development, encouraging
2 and Page No. 83, Q. No. 21. innovations and easy rules for technology transfers
Q. 6. What are the major problems faced by from other countries so that our products can face
developing countries in promoting their exports ? the challenges in international trade, particularly in
What are your suggestions to solve these problems? respect of quality, productivity and cost of
Ans. Ref.: See Chapter-9, Page No. 128, production.
Q. No. 18. Q. 7. Write short notes on the following :
Also Ref.: Following suggestions can be given (a) Free trade and gains from trade
for export promotion by the developing countries:
‘(ii) Free Trade and Gains from Trade’.
Improvements be made in duty drawback
(b) Terms of trade
schemes for providing relief to exporters as
well as indirect exporters, It may be extended
Q. No. 12 and Page No. 129, Q. No. 19 (1).
on the amount of imported inputs also.
(c) General Agreement on Trade in Services
More short term as well as long term
(GATS)
availability of credits on easy terms to
exporters, particularly to the SME Sector
‘(12) ‘General Agreement on Trade in Services’.
(small and medium enterprises).
(d) Regionalism Versus Multilateralism
Government must simplify the regulations
related to exports, procedural formalities and
Q. No. 18.
encourage new exporters;
( Solved )

Weightage: 70%
Part-A Ans. Ref.: See Chapter-3, Page No. 82, Q. No.

Q. 1. Comment on the following: 23, ‘Significance of Balance of Payments’.
(a) Politics has always played and will continue (d) Non-tariff barriers do not restrict market
to play an important role in shaping business all over access to the products of developing countries.
the world. Ans. Ref.: See Chapter-4, Page No. 45,
Ans. Getting acquainted with how politics and law Q. No. 19.
effect business activities around the world is a critical (e) Globalization refers to the absence of
concern of today’s successful global organizations. In borders and barriers to trade between countries.
the past ten years, there have been substantial political Ans. Ref.: See Chapter-5, Page No. 6,
changes around the world that have shaped business Q. No. 10.
operations. New markets have opened, old ones have (f) Globalization is considered to enjoy the
closed and the level of uncertainty that exists presents advantages of both globalization and localization.
many marketing challenges. Ans. Ref.: See Chapter-5, Page No. 70,
Stability of Government Policies: Although the ‘Globalisation’.
preffered political climate for a global firm is stable Part-B
and friendly. Organizations may still profit and succeed Answer the following questions:
in traditionally unfavourable conditions. The most Q. 2. Critically examine Ricardian Theory of
important idea is that the government is stable and the Trade.
set of rules or codes of behaviour that effect business Ans. Ref.: See Chapter-2, Page No. 18,
are predictable and adaptable. Q. No. 14.
There are five main political causes of instability Q. 3. What are various forms of Regional
that affect the international market: Economic Groupings? Discuss the impact of
Changes in ruling political parties. Regional Economic Groupings.
Some forms of government seem to be Ans. Ref: See Chapter 11, Page No. 157-160,
inherently unstable. ‘Forms of Regional Groupings’, ‘Impact of Regional
Trade disputes. Economic Companies’.
Anionsity targetted towards specific countries. Q. 4. How does disequilibrium occur in
balance of payments? Describe the methods of
Extreme nationalism.
correcting the disequilibrium.
(b) Basic functions, processes and techniques of Ans. Ref.: See Chapter-3, Page No. 29, Q. No. 3
international business are essentially the same as and Page No. 35, Q. No. 27.
those involved in domestic business. Q. 5. What are Transnational Corporations
Ans. Ref.: See Chapter-1, Page No. 6, (TNCs)? Why do firms become transnational?
Q. No. 16. Describe main features of TNC.
(c) The continuous deficits of Balance Of Ans. Ref.: See Chapter-7, Page No. 97,
Payments (BOP) is an mportant indicator in credit
rating of countries. Q. No. 12 and Page No. 99, Q. No. 16.
Q. 6. Explain briefly the various laws the Japanese yen, the US dollar, the British pound and
exporter has to take into account before the Euro, the currency basket used to value the SDR
conclusion of the export contract. is “weighted” meaning that the more important
Ans. Ref: See Chapter 14, Page No. 207, currencies have a larger impact on the SDR’s value.
Q. No. 20. Currently, the value of the SDR is equal to the sum
Q. 7. Write short notes on the following:
of 0.423 Euros, 12.1 Yen, 0.111 Pounds, and 0.66
(a) UNCTAD
US Dollars. This basket is re-evaluated every five
years, and the currencies included as well as the
Q. No. 21.
(b) Special Drawing Rights (SDRs) weights given to them can then change. A currency’s
Ans. Special Drawing Rights (SDRs) are importance is currently measured by the degree to
supplementary foreign exchange reserve assets which it is used as a foreign exchange reserve asset
defined and maintained by the International and the amount of exports sold in that currency.
Monetary Fund (IMF). Not a currency itself, they (c) Role of ICC in arbitration and
represent a potential claim on the currencies of IMF conciliation.
member states for which they may be exchanged. Ans. Ref.: See Chapter-16, Page No. 239,
‘Role of International Chamber of Commerce’
Today, the value of the SDR is determined by the
(d) The World Wide Web (WWW).
value of several currencies important to the world’s Ans. Ref.: See Chapter-20, Page No. 299,
trading and financial systems. Composed of the ‘The World Wide Web (WWW)’.
( Solved )

Weightage: 70%
Part-A Ans. Ref.: See Chapter-9, Page No. 130,

Q. 1. Comment on the following : ‘Tariff and Non-tariff Barriers’.
(a) Several companies enter international (c) Inappropriate structure and design restrict
business only to minimize competitive risk. the timely flow of needed information and
Ans. Business operations of a firm are a bye consequently hurt decision-making.
product of the domestic environment. It is true with Ans. The survival and growth of international
domestic business operations as well as foreign business largely depends upon firms’ ability to
business operations. Foreign business operations of a acquire, process and analyze trade information
firm are greatly influenced by home country or regarding products, markets, pricing, channels of
domestic environment. These environmental factors are distribution, modes of market entry and soon. The
many in numbers and in various form. Some of these precise information needs of an international business
factors are totally static while other factors are would vary from product to product and the foreign
dynamic–they are changing every now and then. Hence, markets targetted for international business. The
country environment consists of factors listed below: information inputs provide the basis for the
(i) Competitive structure formulation of the marketing strategy for the
(ii) Economic climate promotion of business. As the international business
(iii) Political and legal forces. environment is dynamic in character, the
The above mentioned factors are dynamic and entrepreneurs would need to update regularly in
are undergoing fast and significant changes. Home regard to latest developments in the foreign markets
country’s environment may act either as a stimulant or as well as in the home market. The rapid development
as a constraint for foreign business operations. If the of information and communication technologies
prevailing economic climate is favourable to business during the last two decades have revolutionized the
growth, there will be more foreign business operations. international trading environment. It has not only
Similarly, if there is lack of demand for a firm’s provided a more informed decision making
products in the domestic market, the firm will like to environment but also more efficient methods of
explore the possibility for exporting the product. If there communications with trading partners located all over
is intense competition in the home market, the the world. Computers have influenced the spreed and
management of firm may formulate a strategy to go mode of carrying out a large number of activities. A
for foreign business operations. large number of activities are carried out
(b) With success of GATT (now WTO) tariffs electronically through computers and Internet.
have become less important as a form of protection Also Add : Information is the key to efficient
than non-tariff barriers. trade. Those businesses which handle information
efficiently in their products and transactions succeed, environment. The important thing to always have in
grow and also provide better customer service. But mind is that the foreign culture is not as we are used
in order to handle informational efficiently, the to at home and to be prepared before starting the new
organisations need the appropriate Information foreign cooperation. By learning the host country’s
Technology (IT) infrastructure. It is not within the language can respect and trust more easily be won,
reach of most firms to have self owned networks, and competitive advantages can arise.
yet they can have a minimum level of internet (e) While corporate social responsibility
working through network service providers. There focuses primarily on business policy issues, ethics
is intense competition in the business environment focuses on individual managerial behaviour.
and it is extremely important to provide quality goods Ans. Business and Social Responsibility: For
at lowest costs to the customers. Therefore, it is a long time in the past, profit maximisation was viewed
very important to put in place a carefully designed as a sole business objective, but this view no more
and implemented information system to assist the holds good. Even the memorandum of association of
firms to handle different issues and grow their a company does not specify profit maximization as
business by providing better products and services the company’s main objective. If companies wish to
to the customers. Their success depends upon their survive and maintain their growth rate in the market,
ability to process large volume of information. So, if they wish to become market leaders, if they wish to
an inappropriate structure and design restrict the sustain an increasing share of sales and assets, they
timely flow of needed information and consequently have to sacrifice a part of their profits in favour of
hurt decision making. Under the leadership of interests of groups other than the owners. Not only
UNCTAD, trade networks on the Internet are being the owners, but the shareholders and salaried
made available to help developing countries increase employees of the firms also wish their companies to
their trade and speed up growth. cater to varied interests of society rather than
(d) Culture cannot be easily isolated from such maximising their profits. This general outlook of
factors as economic and political conditions and business firms recognizes the concept of social
institutions. responsibility. The concept of social responsibility
Ans. Ref.: See Chapter-1, Page No. 2, entails the business organization’s obligations to
‘Socio-Cultural Environment’. outlook after the interests of society beyond the limits
Also Add : The number of companies operating of their economic interests.
internationally is growing constantly. The world is Traditionally, providing goods and services to
opening up for foreign firms and new destinations society according to their demands and needs,
in the company. Business are increasing when going maximizing corporate profits and creating more job
international the challenges the company must handle opportunities were viewed as social responsibilities
are new and unfamiliar culture is one of these of the business but the focus has gradually changed
obstacles and can affect the entire co-operation. from economic aspects to social aspects of the
Culture can influence the business in different ways.
business- decisions. Business organization is viewed
Language problems, pricing difficulties and culture
as an institution that helps in solving a broad range of
collisions are not uncommon, especially in the
social problems like poverty, crime, pollution, raising
beginning. The company must be able to handle these
the level of education, creating better job
difficulties in a way that is satisfying also for the
opportunities, upliftment of the minority and the
other part. It is important, even before entering the
weaker sections of society etc. Business managers
foreign country, to inform the personal about the
have begun to realize that they owe a responsibility
manners and custom in that new culture. Culture can
towards society as they owe it to the business
be both a positive and negative influence and many
enterprises.
companies are struggling in the new and foreign
Business or management ethics is the something) otherwise there cannot be a valid

application of ethical principles to business contract.
relationships and activities. Business ethics, thus, 7. The object and the consideration must be
governs the way a business runs and carries on its lawful, it should not be illegal, immoral of
operations. It determines the standard of behaviour opposed to the public policy.
that guides individual managers in their work. 8. The agreement must be certain and not
(f) Under fixed exchange rate system, a deficit vague. Otherwise the contract would be
in balance of payments is adjusted by a fall in void.
national income. 9. Possibility of performance: The agreem-
Ans. Ref.: See Chapter-4, Page No. 44, ent must not be to perform an act which is
Q. No. 16 and Page No. 52, ‘Fixed Exchange Rate impossible in itself. The act must be
System and Balance of Payment’. capable of being performed.
Q. 2. Distinguish between an agreement and a 10. Agreement must not have been declared
contract. Also describe essential elements of a valid void expressly by any law of the country.
contract. There cannot be any agreement against the
Ans. Ref.: See Chapter-14, Page No. 208, public policy.
Q. No. 21, Page No. 203, ‘Indian Contract Act’ and Q. 3. According to international trade theorists,
Page No. 204, Q. No. 3. nations gain from international trade (export and
Also Add : Elements of a Valid Contract: import). The gains are the consequences of
1. Parties : The agreement has to be made exploiting relative comparative advantages, derived
between two or more parties because just from exporting those goods that a nation holds
one person cannot form an agreement. superior in production cost. Do you agree with this
2. Offer & acceptance : There must be a valid view ? If so, why ? If not, why not ?
offer which is accepted by another person. Ans. Ref.: See Chapter-2, Page No. 17, Q. No. 5,
The offer should be definite & certain and Also Add : Absolute advantage means greater
also it should be communicated to the person advantage or efficiency in the production of goods
who made the offer. enjoyed by one country over another country. Between
3. There should be a clear intention in both the two countries, one is said to have absolute advantage
parties to create legally binding obligations in a good if it can produce that good absolutely more
which should be commercial (and not social/ efficiently than the other country. On the other hand,
domestic). a country is said to have comparative advantage in a
4. Capacity of the parties : All the parties to good if it can produce it relatively more efficiently or
the agreement must be competent to enter relatively less inefficiently compared to the other
into a valid contract. Minors, persons with country.
unsound mind or disqualified are not Also Ref .: Chapter-2, Page No. 19, Q. No. 14
competent to enter into a valid contract. Q. 4. Discuss recent trends and current issues
5. Consent : The consent of the parties must in the transfer of technology.
be real and genuine and it should not be Ans. Ref.: See Chapter-8, Page No. 114,
affected by mutual or common mistakes. All Q. No. 8.
parties must understand and agree on the Q. 5. Differentiate between Direct and
same subject matter in the same sense Portfolio Investment. What are the advantages of
otherwise the contract will be void ab initio. FDI ? What are the limitations? Discuss.
6. Consideration : The agreement must have Ans. Ref.: See Chapter-6, Page No. 72, (i)
a consideration (something in return for ‘Foreign Direct Investment’, (ii) ‘Portfolio
Investment’, Page No. 83, Q. No. 21, Page No. 73, (3) International Tin Agreements
‘Advantages of Foreign Direct Investment to Host (4) International Cocoa Agreements
Country’ and ‘Disadvantages or Limitations of FDI’. (5) International Coffee Agreements
Q. 6. What are International Commodity (6) International Wheat Agreements
Agreements ? What purposes do these agreements (7) International Olive Oil Agreements
serve? What are their usual components? Also Ref.: Chapter-12, Page No. 174, ‘(6)
Illustrate your answer by discussing any one ‘International Sugar Agreement’.
agreement. Q. 7. Explain the broad objectives and
Ans. Ref.: See Chapter-12, Page No. 172, functions of International Monetary Fund.
‘International Commodity Agreements’. Ans. Ref.: See Chapter-13, Page No. 190,
Also Add : International commodity agreements Q. No. 20.
are expected to have the following components Q. 8. Write short notes on any two :
depending upon the agreements: (a) International Trade in services
(i) To make international commodity Ans. Ref.: See Chapter-10, Page No. 136,
agreement successful, 90% of producers (12) ‘General Agreement on Trade in Services’.
and 90% of consumers must participate in (b) EDI standards
the negotiations. Ans. Ref.: See Chapter-20, Page No. 303,
(ii) Objectives of agreements should be clearly Q. No. 13, Page No. 308, Q. No. 32.
spelt out. (c) WTO and Environmental Agenda
(iii) International commodity agreements Ans. Ref.: See Chapter-17, Page No. 263, (5)
should aim at buffer stock operations. ‘The World Trade Organization (WTO)’.
Following international commodity agreements (d) Multilateral Investment Guarantee Agency
have been negotiated: Ans. Ref.: See Chapter-6, Page No. 75,
(1) International Rubber Agreements ‘Multilateral Investment Guarantee Agency’, Page No.
(2) International Sugar Agreements 187, ‘Multilateral Investment Guarantee Agency’.
( Solved )
Time: 3 hours ] [ Maximum Marks: 100

Weightage: 70%
Note: Answer Question 1 which is compulsory and do any other four of the following. All questions carry
equal marks.
Q. 1. Comment on any four of the following (d) Managers’ ability to control foreign
Statements: operations has contributed a great deal to the
(a) World trade has been growing faster than growth of international business.
world output. Ans. International business comprises all
Ans. Between 1980 and 2002 World Trade has comerical transactions (private and government,
more than trippled world output has only double. The sales, investments, logistics and transportation) that
rise in trade relative to output is common across take place between two or more regions, countries
countries and regions although the relative growth in and nations beyond their political boundaries. Usually
trade and output verys greaty. In the past debate there private companies undertake such transactions for
has been an increasing integration of the world economy profit, governments undertake them for profit as well
through the increase of international trade. The volume as political reasons.
of world trade has been increased significantly relative As trade barriers recede and businesses in
to world output between 1980 and 2002. Some of this developed economies increasingly pursue market
increase can be accountant for by the fact that traded upport unities abroad, competency and effectiveness
goods have become cheaper over time relative to those in international management are paramount skill at
goods that are not traded, however even in nominal many companies. The issues involved in international
terms the trade to GDP ratio has increase over this management span the whole gamut of those
period. The trade to GDP ratio has increase in major concerning management in general but there are
economies it has reason by around 50% points in Non- several areas of special interest, including.
Japan Asia around 15% points in the euro area, Latin International finance and currency matter.
American countries and the United Kingdom, but by Cross cultural communication and under-
less than 10% points in eastern europian countries the standing.
United State in Japan. Foreign legal requirements and accounting
(b) Globalisation of capital markets is a major practices.
force that propelled globalisation. global strategy.
Ans. Ref: See Chapter-5, Page No. 61, Q. No. 10 International competition.
‘Point-2—International Capital Flow’. To ignore such issues in an international
(c) Environment is now well and truely entren- business is to open door to risk like in appropriate
ched in the WTO Agenda and no nation can afford marketing approaches, poor labour management
to ignore this fact. relations, adverse currency fluctuation and other
Ans. Ref: See Chapter-17, Page No. 252-253, problems.
‘Trade Versus Environment’ and ‘GATT and the Contemporary international managers will need
Environment Agenda’. to demonst rate a higher level of skill than those
exhibited by the traditional managers in the past. They The trade simulation effects intended by mean of
must be multilingual sensitive to cultural differences economic integration are part of the contemporary
and knowledge about current gobal management economic theory of the second last where, in theory,
theory, philosophy, psychology and their practical the last option is free trade, with free competetion and
application. no trade barriers whatsoever free trade is treated as
Equally important is the manager’s ability to an idealistic option and although realized within
choose the right strategy and organisation applicable certain developed state. Economic integration has been
to individual companies operating in the international thought of us as the second best option for global trade
managment. They include globalization, rationali- where barriers to full free trade cuts. In economic the
zation national responsivness and the multifocal word integration was first employed in industrial
approach. whether or not these strategies are organisation to refer to combinations of business firms
implemented depend’s upon a countries size and the through economic agreements, cartels, concerns, trusts
number of countries in which it operates competent and mergers horizontal referring to combinations of
international managers must be able to analyze the competitors, vertical integration to combinations of
business and political environments endemic to the suppliers with customers.
countries in which they are operating and adapt the There are economic as well as political reasons
strategies either individually or in combination, that why nations pursue economic integration. The
best suit their needs. economic rationals for the increase of trade between
(e) Changes in exchange rates influence a member states of economic unions that it is meant to
country’s balance of payments. lead to higher productivity.
Ans. Ref: See Chapter-4, Page No. 51, Q. No. The degree of economic integration can be
23. categorized into seven stages:
(f) Developments in computer and tele- 1. Preferential trading area
communications in recent decades has moved the 2. Free trade area
world from manufacturing to information 3. Customs union
technology. 4. Common market
Ans. Ref: See Chapter-20, Page No. 297-298, 5. Economic union
‘Introduction’, ‘E-Commerce’ and ‘Benefits of E- 6. Economic and monetary union
commerce’. 7. Complete economic integration
Q. 2. Define ‘globalisation’. Discuss the main These differ in the degree of unification of
factors propelling the process of globalisation, economic policies, with the highest one being the
with suitable examples. completed economic integration of the states, which
Ans. Ref: See Chapter-5, Page No. 61, Q. No. would most likely involve political integration as well.
10. A “free trade area” (FTA) is formed when at least
Q. 3. What are the major types of economic two states partially or fully abolish custom tariffs on
integration? Briefly describe the main features of their inner border. To exclude regional exploitation
each of them. Also discuss the impact of integration of zero tariffs within the FTA there is a rule of
on economies of member countries. certificate of origin for the goods originating from the
Ans. Economic integration is the unification of territory of a member state of an FTA.
economic policies between different states through A “customs union” introduces unified tariffs on
the partial or full abolution to tariff and non tariff the exterior borders of the union (CET, common
restruction on trade taking place among them prior external tariffs). A “monetary union” introduces a
to their integration. This is meant in turn to lead to shared currency. A “common market” add to FTA the
lower prices for distributors and consumers with the free movement of services, capital and labour.
goal increasing the level of welfare, while leading to An “economic union” combines customs union
and increase of economic productivity of the states. with a common market. A “fiscal union” introduces a
shared fiscal and budgetary policy. In order to be Ans. Ref: See Chapter-20, Page No. 300, ‘Global
successful the more advanced integration steps are Trade Point Network’ and Page No. 301, ‘Electronic
typically accompanied by unification of economic Trading Opportunity Scheme’.
policies (tax, social welfare benefits, etc.), reductions Q. 7. Discuss the Bretton Woods System and
in the rest of the trade barriers, introduction of explain the reasons for its breakdown in 1971.
supranational bodies, and gradual moves towards the What is the present exchange rate system ?
final stage, a “political union”. Ans. Ref: See Chapter-13, Page No. 193,
Q. 4. Examine various codes of ethics for Q. No. 23.
international marketing relevant for multi- Q. 8. Write short notes on any two of the
national corporations. following:
(a) Tariff and Non-tariff Barriers
Ans. Ref: See Chapter-19, Page No. 290,
Q. No. 29.
Q. No. 5 and 6.
Q. 5. Discuss the significance of political
(b) International Development Association
environment on international business. What
factors need to be taken into consideration while Q. No. 15.
analysing political environment of country under (c) Salient features of Arbitration and
consideration for investment? Conciliation Act, 1996
Ans. Ref: See Chapter-1, Page No. 3, Ans. Ref: See Chapter-16, Page No. 240-241,
‘Political Environment’ and Page No. 12, Q. No. 22. ‘Indian Arbitration and Concillation Act 1996’.
Q. 6. Describe main elements of Trade Point (d) GATS
Network and Electronic Trading Opportunities Ans. Ref: See Chapter-18, Page No. 273,
scheme. Q. No. 15.
( Solved )

Weightage: 70%
Part-A can be free trade policy or protective trade policy. A

Q. 1. Comment on the following : free trade policy is one which does not impose any
(a) Subsidies do not help local companies to be restriction on the trade of goods and services between
cost competitive. different countries. A free trade policy involves complete
Ans. Ref.: See Chapter-4, Page No. 46, absence of tariff and non-tariff barriers e.g. tariffs, quotas,
‘(3) Subsidies’ and Page No. 43, Q. No. 9. exchange restrictions, taxes and subsidies on production,
(b) Theory of comparative advantage provides factor use and consumption. Though free trade offers
the basis for international trade. several advantages, in reality particularly under-
Ans. Ref.: See Chapter-2, Page No. 17, developed and developing countries were at a
Q. No. 5. disadvantage in such a system of international trade. As
Also Add : According to Ricardian theory of trade, a result, in the early 20th century. International economy
comparative advantage determines the pattern of trade. saw the emergence of protective trade polices. A
Ricardo asserted that even if a nation does not posses protective trade policy pursued by a country seeks to
absolute advantage, there are chances of gains through maintain a system of trade restrictions with the objective
trade among the nations on the basis of comparative of protecting the domestic economy from the
advantage. A country, in comparison to producing all competition of foreign products.
the goods, it can produce and not trading, is better off (e) Globalisation refers to the absence of
by: (a) producing more of the goods which it can borders and barriers to trade between countries.
produce relatively cheaply and exporting part of them Ans. According to the Chambers 20th century
and (b) producing less- possibly none – of the goods dictionary “Globalization means to make global i.e.
which it cannot produce relatively cheaply compared worldwide, or effecting or taking into consideration
to other nations and importing them. Thus Ricardian the whole world or all people.” According to Deepak
theory is based on differences in technology across Nayyar “Globalization can be defined as the
nations. A nation is said to have comparative advantage expansion of economic activities across political
in a good if it can produce it relatively more efficiently boundaries of nation states.” In simple words,
or relatively less inefficiently compared to the other globalization means integration of different
nation. economies of the world into one global village thereby
(c) Instability in export earnings of developing reducing the economic gap between different
countries is caused by both demand and supply countries. Globalization is characterized by removal
factors. of all restrictions between nations on the movement
Ans. H.w matter he nahi hai of goods, services, capital, technology and labour.
(d) Trade policy is an important instrument to Globalization views the entire world as a single
regulate the foreign trade. market and does not differentiate between domestic
Ans. Trade policy refers to policy adopted by a market and foreign markets. Globalization
country with reference to exports and imports. Trade policy encompasses the following:
(1) Free flow of goods and services across the most important idea is that the government is stable
countries. and the set of rules or codes of behaviour that effect
(2) Free flow of capital across the countries. business are predictable and adaptable.
(3) Free flow of technology between countries. There are five main political causes of instability
(4) Free movement of labour across the that affect the international market:
countries. Changes in ruling political parties.
(f) Intellectual Property Rights have become Trade disputes.
an important issue in current international Anionsity targetted towards specific
business scenario. countries.
Ans. Ref.: See Chapter-8, Page No. 110, Extreme nationalism.
‘Intellectual Property Rights’ and ‘International Also Ref : Chapter-1, Page No. 12, Q. No. 22.
Agrements for Intellectual Property Rights’. Q. 5. What is WTO ? Explain its broad
PART - B objectives, structure and functions.
Attempt the following questions from this Ans. Ref.: See Chapter-10, Page No. 131,
part: ‘World Trade Organisation’ and Page No. 132,
Q. 2. According to Heckscher-Ohlin- ‘ Objectives of WTO’.
Samuelson theory, a country which is relatively Adso Add : The apex WTO body responsible
abundant in labour will have comparative for decision-making is the Ministerial Conference. It
advantage in labour intensive goods. Do you agree is expected to meet every two years. The first WTO
Ministerial conference is scheduled to be held in
? Give suitable illustrations in support of your
Singapore before the end of 1996.
answer.
During the two years between meetings, the
functions of the Conference are perfomed by the
Q. No. 15.
General General Council.
Q. 3. Describe various activities performed by
The General Council meets as a Dispute
the World Bank. Do you think that these activities Settlement Body when it considers complaints and
are beneficial for developing countries ? takes necessary steps to settle disputes between
Substantiate your answer. member countries. It is also responsible for carrying
Ans. Ref.: See Chapter-13, Page No. 186, out reviews of the trade policies individual countries
‘World Bank’ and Page No. 197, Q. No. 28. on the basis of the reports prepared by the WTO
Q. 4. Discuss the importance of political secretariat.
environment in international business. Explain The General Council is assisted in its work by
and give suitable illustrations in support of your the:
answer. Council for Trade in Goods, which oversees
Ans. Ref.: See Chapter-1, Page No. 3, ‘Political the implementation and operation of GATT
Environment’, 1994 and its associate agreements;
Also Add : Getting acquainted with how politics Council for Trade in Services, which
and law effect business activities around the world oversees the implementation and operation
is a critical concern of today’s successful global of GATS; and
organizations. In the past ten years, there have been Council for TRIPs which oversees the
substantial political changes around the world that operation of the agreement on TRIPs.
have shaped business operations. New markets have It also indicates the various committees
opened, old ones have closed and the level of established by the WTO Agreement itself and the other
uncertainty that exists presents many marketing committees that have been established for detailed
challenges. work at the operational level under the various
Stability of Government Policies: Although the associate agreements.
preffered political climate for a global firm is stable Functions of WTO: The Agreement establis-
and friendly. Organizations may still profit and hing WTO provides that it should perform the
succeed in traditionally unfavourable conditions. The following four functions:
(1) First, it shall facilitate the implementation (Nepal). The various objectives of SAARC as
administration and operation of the defined in its Charter include:
Uruguay Round legal instruments and of  To promote the welfare of the people of
any new agreements that may be negotiated South Asia and to improve their quality of
in the future. life;
(2) Second, it shall provide a forum for further  To accelerate economic growth, social
negotiations among member countries on progress and cultural development in the
matters covered by the agreements as well region and to provide all individuals the
as on new issues falling within its mandate.
opportunity to live in dignity and to realize
(3) Third, it shall be responsible for the
their full potentials;
settlement of differences and disputes
among its member countries.  To promote and strengthen collective self
(4) Fourth, it shall be responsible for carrying reliance among the countries of South Asia;
out periodic reviews of the trade policies  To contribute to mutual trust, understanding
of its members countries. and appreciation of one another’s problems;
Q. 6. Discuss the areas and approaches to social  To promote active collaboration and mutual
responsibility of international business. assistance in economic, social, cultural
Ans. Ref.: See Chapter-19, Page No. 291, technical and scientific fields;
Q. No. 30 and Page No. 295, Q. No. 33 (iii).  To strengthen cooperation with other
Q. 7. Discuss the following multilateral
developing countries;
environment agreements :
(a) The Montreal Protocol.  To strengthen cooperation among themse-
Ans. Ref.: See Chapter-17, Page No. 258, lves in international forums on matters of
‘The Montreal Protocol’. common interests;
(b) The Basel Convention.  To cooperate with international and regional
Ans. Ref.: See Chapter-17, Page No. 258, organizations with similar aims and
‘The Basel Convention’. purposes.
Q. 8. Attempt short notes on the following : Bilateral issues and contentious issues are
(a) Terms of trade excluded from the discussions of the Association.
Ans. Ref.: See Chapter-9, Page No. 129, Decisions at all levels are taken unanimously.
Q. No. 12 and Page No. 129, Q. No. 19 (1). Great progress was achieved in implementation
(b) SAARC of South Asian Free Trade Agreement (SAFTA).
Ans. SAARC (the South Asian Association for
Also Ref.: Chapter-11, Page No. 161,
Regional Cooperation) is a regional intergovernmental
organisation of countries in South Asia. Its member ‘SAARC Preferential Trading Arrangement’.
countries are India, Afghanistan, Bangladesh, Bhutan, (c) Rybczynski Theorem
Nepal, Maldives, Pakistan and Sri Lanka. There are Ans. Ref.: See Chapter-2, Page No. 22,
nine Observers (China, the EU, Iran, Republic of Q. No. 18.
Korea, Australia, Japan, Mauritius, Myanmar and (d) Special Drawing Rights
USA. SAARC was founded on 8th December 1985 Ans. Ref.: See Chapter-13, Page No. 186,
in Dhaka. The Secretariat of SAARC is in Kathmandu ‘Special Drawing Rights (SDRs)’.
( Solved )
PART–A Banks with a view to enhancing the credit worthiness

Q. 1. Comment on the following: of the exporter so that they would be able to secure
(a) Dumping is not an unethical activity. better and large facilities from their bankers. To
Ans. In international trade, the export by a country meet the varying needs of exporters. The
or company of a product at a price that is lower in the Corporation has evolved the following types of
foreign market than the price charged in the domestic Guarantees:
market. As dumping usually involves substantial 1. Packing Credit Guarantee;
export volumes of the product, it often has the effect 2. Export Production Finance Guarantee;
of endangering the financial viability of manufacturers 3. Post-shipment Export Credit Guarantee;
or producers of the product in the importing nation. 4. Export Finance Guarantee;
Dumping is also a colloquial term that refers to the 5. Export Performance Guarantee;
act of offloading a stock with little regard for its price. 6. Export Finance (Overseas lending)
While the World Trade Organization reserves Guarantee.
judgment on whether dumping is unfair competition,
1.Packing Credit Guarantee: Any loan given
most nations profess to be against the practice.
to an exporter for the manufacture processing,
Dumping is legal under World Trade Organization
purchasing or packing of goods meant for export
rules unless the foreign country can reliably show the
negative effects of the exporting firm on the domestic against a firm order or letter of credit qualifies for
producers. In order to counter dumping, most nations packing Credit Guarantee. The Guarantee is issued
use tariffs and quotas to protect their domestic industry for a period of 12 months against a proposal made
from the negative effects of predatory pricing. for the purpose and covers all the advances that may
In an increasingly global economy, consumers in be made by the banks during the period to a given
a nation that has been the target of dumping activity exporter within an approved limit. To banks, which
may have few qualms about consuming products that undertake to obtain cover for packing credit
have been dumped, as long as they are of comparable advances, granted to all its customers on an all India
quality to local merchandise but are priced much basis.
lower. Over time, dumping may have a negative impact 2. Export Production Finance Guarantee:
on the local economy by driving domestic producers The purpose of this guarantee is to enable banks to
out of business, which would result in job losses and
sanction advances at the pre-shipment stage to the
a higher rate of unemployment.
full extent of cost of production when it exceeds
(b) ECGC enhances credit worthiness of not
only export business but also of exporters. the FOB value of the contract/order, the difference
Ans. The Export Credit Guarantee Corporation, representing incentives receivable. The extent of
(ECGC) has designed a scheme of Guarantees to cover and the premium rate are the same as packing
Credit Guarantee. Banks having WTPCG are eligible First off, PCR lacks a fundamental understanding
for concessionary premium rateand higher percentage of what trade is and why it occurs. Trade is not based
cover. on the principle of comparative advantage of factors
3. Post-Shipment Export Credit Guarantee: of production costs. Division of labour is based on
Post-shipment finance given to exporters by banks the principle of comparative advantage of factors of
through purchase, negotiations or discount of export production costs. Trade is fundamentally based on
bills or advances against such bills qualifies for the both parties to a trade both increasing their subjective
guarantee. It is necessary however, that the exporter utilities from the exchange. Otherwise, trade would
concerned should hold suitable policy of ECGC to not occur, no matter what the comparative factors of
cover the overseas Credit risks. production costs. He substitutes his own personal
4. Export Finance Guarantee: This guarantee subjective valuation of what is “important” industry
covers post-shipment advance granted by banks to and erroneously conceptualizes subjective individual
exporters against export incentives receivable in the perferences as objectives preference policy goals of
form of duty drawback, etc. The Premium rate for this countries.
Guarantee is 7 paise per Rs. 100 per month and the Conflict is inherent in international trade only
cover is 75 per cent. Banks having WTPSG are eligible from the point of view of various governments
for concessional rate of premium and higher competing with force against each other to alter the
percentage of cover. working of the free market. By definition of trade,
5. Export Performance Guarantee: Exporters people are worse off, when they are artificially
are often called upon to execute bonds duly guaranteed prevented from doing so. Some may be better off as
by Indian banks at various stages of export business. the robber is better off after completing the theft
An exporter who desires to quote for a foreign tender Foreign “cheap labour” workers are portrayed as
may have to furnish a bank guarantee for the bid bond. somehow less deserving or less human than domestic
If he wins the contract, he may have to furnish bank high wasge workers.
guarantees to foreign buyers to ensure due (f) Ethical dilemmas and ethical lapses are the
performance or against advance payment or in lieu of same.
retention money or to a foreign bank in case he has to Ans. Ref: See Chapter 19, Page No. 284,
raise overseas finance for his contract. Q. No. 3, 4 and 5.
(c) Business strategies which are successful in PART–B
one country will also be successful in another Answer the following questions:
country. Q. 2. (a) What are various forms of Regional
Ans. Ref: See Chapter 1, Page No. 8, Economic Groupings? Give examples.
Q. No. 18. Ans. Ref: See Chapter 11, Page No. 157-160,
(d) Basic functions, processes and techniques ‘Forms of Regional Grouping’.
of international business are essentially the same (b) Discuss the impact of Regional Economic
as those involved in domestic business. Groupings.
Ans. Ref.: See Chapter-1, Page No. 6, Ans. Ref: See Chapter 11, Page No. 160, ‘Impact
Q. No. 16. of Regional Economic Companies’.
(e) Free trade is always better than no trade. Q. 3. (a) Evaluate the advantages and
Ans. This is the same argument that was made in disadvantages of Foreign Direct Investment (FDI).
Post-WWI Germany. “In other cases, one country (b) What is in your opinion the role of FDI in
gains at the expense of another. In some cases trade the economic development of the host country.
is worse than no trade.” That was the same rationale Ans. Ref: See Chapter 6, Page No. 81,
Germany used to invade it’s neighbours: to “Achieve Q. No. 20.
their individually best outcome.” Well, of course, the Q. 4. Explain the factors causing instability in
robber is worse off if he is prevented from taking by the prices of commodities in international markets.
force the property of another.
Evaluate the role of International Commodity (a) Agriculture

Agreements in stabilising prices of agricultural Ans. Ref: See Chapter 10, Page No. 144,
products. Q. No. 17, ‘Agreement of Agriculture’.
Ans. Ref: See Chapter 12, Page No. 176, (b) Trade Related Investment Measures
Q. No. 18 and Page No. 177, Q. No. 20.
Ans. Ref: See Chapter 10, Page No. 146,
Q. 5. (a) Describe various Internet Services
Q. No. 18 (i).
related to the international business.
Q. 8. Write short notes on the following:
(a) Current Account of Balance of Payments
‘Applications of Internet Services’.
(b) Discuss the Global Trade Point Network.
‘Current Account’ and Page No. 29, Q. No. 7.
(b) Terms to Trade
‘Global Trade Point Network (GTPN)’.
Q. 6. What are the major issues in settlement
Q. No. 22 (i).
of international trade disputes? Discuss the role
of International Chambers of Commerce (ICC) (c) General Agreement on Trade in Services
in this regard. (GATS)
Ans. Ref: See Chapter 16, Page No. 244, Ans. Ref: See Chapter 18, Page No. 273,
Q. No. 18, Page No. 239, Role of International Q. No. 15.
Chamber of Commerce (ICC)’. (d) Modern theory of trade
Q. 7. Explain the multilateral agreements Ans. Ref: See Chapter 2, Page No. 23,
Q. No. 19.
related to:
( Solved )

Weightage: 70%
Part-A provides numerous opportunities also which include

Q. 1. Comment on the following : changing needs of customers and markets,
(a) Sound financial position of the country technological progress etc.
coupled with the favourable investment policies Also Ref. : Chapter-1, Page No. 8, Q. No. 19.
reflect strong demand potential. (b) BOP situation affects the exchange
Ans. Economic and Financial Environment are markets and is therefore of concern to everyone
closely related to each-other. Economic environment concerned with foreign exchange.
refers to broad characteristics of the economic system Ans. In order to properly understand the
in which the firm carries out its business activities. dynamics of the changing international scenario,
Following are the major factors of economic managers require thorough knowledge of the macro-
environment influencing the foreign market decisions: economic environment with main emphasis on its
(i) Economic development. financial link between the domestic and global
(ii) Gross national product and its sectoral economies. Such data are compiled in the analysis
distribution. of balance of payments, like the Reserve Bank of
(iii) Expenditure pattern. India compiles these data in our country. These data
(iv) Infrastructure i.e. social overheads such as affect the foreign exchange markets and the
transportation, communication, warehousing, developments happening in exchange markets
advertising etc. require appropriate changes in the policies. A deficit
Financial environment refers to broad situation in BOP on a continuous basis is seen as
characteristics of the financial system prevailing in the that the country is having problems in servicing its
foreign country. Following are the major factors of debts. So, it becomes very important for the corporate
financial environment influencing the foreign market managers to regularly monitor BOP data of their
decisions: country as well as of its trading partners. Therefore,
(a) Monetary policy BOP data present a view of the macroeconomic
(b) Fiscal policy environment and is a major concern for the
(c) Commercial policy or trade policy companies. So, it is true that BOP situation affects
(d) Foreign investment policy the exchange markets and is therefore of concern to
(e) Balance of payments account. everyone concerned with foreign exchange.
Business environment provides both constraints (c) When operating abroad, companies may
and opportunities. Particularly in international business. have to adjust their usual methods of doing
Environments in foreign countries are different and also business.
unfamiliar to a business firm. Some of the constraints Ans. Business firms are generally familiar with
of foreign environment include economic conditions, the factors constituting domestic environment.
customs, government regulations. Availability of natural Therefore, business firms are in a position to adopt
resources etc. International business environment itself to them. For example, if there is lack of demand
for a firm’s products or there is intense competition protectionism. But experts believe that such tariffs/
in the domestic market, the firm may formulate a quotas/subsidies do not promote a level playing field
strategy to go for international business. Similarly, if and are as such detrimental to free world trade. Trade
the government offers incentives for exports, the firms controls may lead to global trade war. By imposing
may like to go for exporting. tariffs, the quantity imported falls that leads to
Foreign Environment: Foreign environment increase in domestic prices which adversely affects
means the factors and forces operating in a foreign local consumers. Import quotas restrict the quantity
country or countries with whom a firm in domestic of imports.When other countries also follow the
economy wants to have international business. Foreign policy of protectionism, exports of the home country
environment consists of the following: also get adversely affected and it also restricts
(i) Geographic environment availability of foreign exchange for financing its
(ii) Ecological environment crucial imports and new technology. Consumers are
(iii) Legal environment left with a limited choice and they have to pay more
(iv) Political environment for goods / services. The quality improvement of the
(v) Socio-cultural environment produce also is affected because of non availability
(vi) Economic and financial environment. of new technology. This may also lead to reduced
Since foreign environment is related to foreign consumption and thereby its effect on the domestic
country or countries. Firms in domestic economy may industry. The domestic country keeps the value of
not be fully aware of factors constituting foreign its currency low in the forex market to continue to
environment. Foreign environment offers a number do exports but foreign products in domestic market
of opportunities but with some constraints. Hence, a will become costly.
business firm should carefully analyze the foreign When other countries also retaliate the same way,
environment. If a firm intends to operate in number imports become costlier and the real GDP growth of
of foreign markets. The problem of analyzing foreign the nation gets affected. Import of quality goods gets
environment becomes more complicated because the affected adversely affected and there are more harms
environment prevailing in one country is generally of protectionism than good. So, it is clear that trade
not the same in another country. As a result, strategies controls directly affect quantity and indirectly affect
adopted for one foreign market may not give same quality of trade flows.
results in second foreign market. Since most of the (e) The Arbitration and Conciliation Act, 1996
factors constituting foreign environment are dynamic, has ensured minimal judicial intervention in
a firm has to be careful in monitoring the changes in arbitration proceedings.
foreign environment. Ans. Ref.: See Chapter-16, Page No. 246,
(d) Trade controls directly affect quantity and
‘Judicial Intervention’.
indirectly affect quality of trade flows.
Ans. Governments still continue to control trade, (f) Cross border mergers and acquisitions are
mainly to protect domestic producers, even if not increasing.
imported products cost less. Rules are framed to Ans. Ref.: See Chapter-5, Page No. 69,
increase the price of imported products by levying Q. No. 27 (i).
taxes. Or by giving financial help (subsidies) to local PART - B
manufacturers/farmers in order to make their produce Answer the following questions :
less costly than the imported product and withstand Q. 2. Describe trends in world trade in goods
competition from the imports. Tariffs are taxes on and services its composition and directions.
imports to raise its price and make them less Ans. Ref.: See Chapter-9, Page No. 124,
competitive. Quotas may also be fixed to put a limit Q. No. 15 and Page No. 127, Q. No. 16
on the quantity of imports over a period of time. Q. 3. Discuss the role of World Bank in
It is felt that the governments should control free promoting industrial growth of developing
trade. Supporters of trade controls provide legitimate countries.
reasons for the countries to get engage in Ans. Ref.: See Chapter-13, Page No. 196,
Q. No. 27.
Q. 4. Explain the neo-classical theory of Compared with economic cooperation and

international trade. What are the underlying integration schemes among the industrial countries,
assumptions ? those among the developing countries are somewhat
Ans. Ref.: See Chapter-2, Page No. 21, less successful due to lack of political will on national
Q. No. 16 and Page No. 18, Q. No. 9. and regional issues; the pattern of economic
Q. 5. How has WTO evolved from GATT?
management; and the impact of external political and
What are its functions ? Describe salient features
economic influences over which, by and large, the
of Agreements of Agriculture and Trade in
Services. members of such regional economic groupings have
Ans. Ref.: See Chapter-10, Page No. 131, little control.
‘World Trade Organisation’, Page No. 132, ‘Functions Also Ref.: Chapter-11, Page No. 165, Q. No. 11.
of WTO’, Page No. 134, (i) ‘Agriculture’ and (c) Theocratic Legal System
Page No. 136, ‘General Agreement on Trade in Ans. In a Theocratic form of Government, the
Services’. country is governed by a deity or by those people
Q. 6. What are the alternative methods of who, it is thought, are divinely guided. Theocratic
entry into foreign markets? Explain their merits Legal System is based on religious laws. This type of
and demerits. rule is typical of early civilizations. In this legal
Ans. Ref.: See Chapter-5, Page No. 58, system, the courts are presided over by religious
Q. No. 9.
officials. Here, God is the ultimate source of
Q. 7. Write short notes on the following :
authority. The legal system follows the writings of
(a) Transfer Pricing
Ans. Ref.: See Chapter-7, Page No. 95, scholars who made the rules by analogy from the
Q. No. 2 and Page No. 98, Q. No. 13. religious books. The government leaders claim to be
(b) Regional Economic Groupings inspired by the God and all the laws are written and
Ans. Formation of regional groupings has enforced on this belief. The government officials first
undoubtedly been one of the significant developments serve the God and not the people.
that has taken place in the global economic scenario In theocracy the God or a deity is recognised as
since the end of Second World War. The world trading the supreme civil rular. In this system, priests rule in
system is presently characterised by trading blocks the name of God. The word theocracy in Greek
among the developed and developing economies. language means the rule of God. God himself is
Now groupings are emerging with membership recognised as the Head of the State. In theocracy, the
comprising of countries belonging to more than one
laws must be consistent with religious text which the
existing grouping. These regional groupings throw up
ruling religion abides by the countries which have
both opportunities as well as challenges for individual
countries. The main aim of regional groupings is to theocracy are under :
accelerate the development process and improve the Valican City
quality of life of the residents of the region by Saudi Arabia
providing them with greater choice both as producers Sudan
and as consumers. Regional economic blocks have Iran
proliferated in the world in recent years. To name a Afghanistan
few, the European community and the North American The theocratic rule allowed individuals with
Free Trade (NAFTA) among the developed countries, religious backgrounds to assume unprecedented
and Association of Southeast Asian Nations
levels of power.
(ASEAN), South Asian Association for Regional
Cooperation (SAARC) and Latin American (d) Electronic Commerce
Integration Association (ALADI) among the Ans. Ref.: See Chapter-20, Page No. 297,
developed countries. ‘E-Commerce’ and ‘Benefits of E-Commerce’.
( Solved )
Section–A the company. Business are increasing when going

Q. 1. Comment on the following: international the challenges the company must
(a) Politics has always played and will handle are new and unfamiliar culture is one of these
continue to play an important role in shaping obstacles and can affect the entire co-operation.
business all over the world. Culture can influence the business in different ways.
Ans. Getting acquainted with how politics and Language problems, pricing difficulties and culture
law effect business activities around the world is a collisions are not uncommon, especially in the
critical concern of today’s successful global beginning. The company must be able to handle
organizations. In the past ten years, there have been these difficulties in a way that is satisfying also for
substantial political changes around the world that the other part. It is important, even before entering
have shaped business operations. New markets have the foreign country, to inform the personal about
opened, old ones have closed and the level of the manners and custom in that new culture. Culture
uncertainty that exists presents many marketing can be both a positive and negative influence and
challenges. many companies are struggling in the new and
Stability of Government Policies: Although the foreign environment. The important thing to always
preffered political climate for a global firm is stable have in mind is that the foreign culture is not as we
and friendly. Organizations may still profit and are used to at home and to be prepared before
succeed in traditionally unfavourable conditions. The starting the new foreign cooperation. By learning
most important idea is that the government is stable the host country’s language can respect and trust
and the set of rules or codes of behaviour that effect more easily be won, and competitive advantages
business are predictable and adaptable. can arise.
There are five main political causes of instability (c) The recent expansion of technology has
that affect the international market: contributed to the growth of international
Changes in ruling political parties. business.
Some forms of government seem to be Ans. The biggest change that has happened in
inherently unstable. the last fifteen years is the continuous growth on
Trade disputes. the technology. This has played a huge role in
Anionsity targetted towards specific countries. changes business activities, individuals and
Extreme nationalism. organizations. The most drastic change has
(b) Culture cannot be easily isolated from such happened within organizations as they have had to
factors as economic and political conditions and adapt the entire organization to technological
institutions. changes. Business and Business Managers can view
Ans. The number of companies operating these technology changes as obstacles or
internationally is growing constantly. The world is opportunities. These changes should be viewed as
opening up for foreign firms and new destinations in opportunities that will be both beneficial to current
employees and the entire organization. As technology Q. 5. Explain the concept and different forms
grows organizations have to grow with them and of Alternatives Dispute Resolution (ADR)
business manager are in a unique position to make mechanism.
this happen if they take the necessary steps needed to Ans. Ref: See Chapter 16, Page No. 243,
create and embrace change. The research found that Q. No. 16.
investing in new technologies-including business Q. 6. Describe the objectives and functions of
management software, data analystics, mobile, social
IMF.
media and cloud computing is a top strategic priority
as small businesses expand internationally. Almost
Q. No. 20.
two-thirds of those surveyed strongly believed
technology is the key to helping them achieve Q. 7. Write short notes on the following:
longevity and sustainable growth. (a) Strategic Alliances
(d) Fluctuations in exchange rates affect the Ans. Ref: See Chapter 11, Page No. 168, Q. No.
profitability of not only exporting/importing firms 21, See Point (4).
but also purely domestic firms. (b) Special Drawing Rights
Ans. Ref: See Chapter 4, Page No. 51, Ans. Special Drawing Rights (SDRs) are
Q. No. 23. supplementary foreign exchange reserve assets
(e) The purpose of a trade theory is to explain defined and maintained by the International Monetary
the pattern of trade between two countries. Fund (IMF). Not a currency itself, they represent a
Ans. Ref: See Chapter 2, Page No. 17, Q. No. 1. potential claim on the currencies of IMF member
(f) Multinational corporations face the issue states for which they may be exchanged. Today, the
of ethical dilemmas. value of the SDR is determined by the value of several
Ans. Ref: See Chapter 19, Page No. 284, Q. No. currencies important to the world’s trading and
5 and Page No. 281, Ethical Unethical Activities. financial systems. Composed of the Japanese yen, the
Section–B US dollar, the British pound and the Euro, the currency
Answer the following questions:
basket used to value the SDR is “weighted” meaning
Q. 2. (a) Discuss the major forces of
that the more important currencies have a larger impact
globalization.
on the SDR’s value. Currently, the value of the SDR
Q. No. 10. is equal to the sum of 0.423 Euros, 12.1 Yen, 0.111
(b) Describe the effects of globalization on the Pounds, and 0.66 US Dollars. This basket is re-
world economy. evaluated every five years, and the currencies included
Ans. Ref: See Chapter 5, Page No. 56, ‘Effect as well as the weights given to them can then change.
of Globalization’. A currency’s importance is currently measured by the
Q. 3. What are the key features of Foreign degree to which it is used as a foreign exchange reserve
Direct Investment (FDI) in India? Distinguish asset and the amount of exports sold in that currency.
between Direct and Portfolio investments, clearly (c) General Agreement of Trade in Services
pointing out their respectives key characteristics. (GATS).
Ans. Ref: See Chapter 6, Page No. 85, Q. No. Ans. Ref: See Chapter 18, Page No. 273,
24 and Page No. 83, Q. No. 21. Q. No. 15.
Q. 4. How do behavioural practices affect (d) Global Trade Point Network.
business? Explain giving suitable illustrations. Ans. Ref: See Chapter 20, Page No. 303,
Ans. Ref: See Chapter 1, Page No. 10, Q. No. 7.
Q. No. 21.

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Part-A problems, pricing difficulties and culture collisions

Part-B tent to contract who is of the age of majority

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Part-A economic transactions but also with an organization

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Part-A (b) ‘Free trade is always better than no

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Part-A (c) Understanding of new technology is

Additional measures were taken in 1992-93 to Collection/dissemination of information by

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Part-A Ans. Ref.: See Chapter-3, Page No. 82, Q. No.

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Part-A Ans. Ref.: See Chapter-9, Page No. 130,

Business or management ethics is the something) otherwise there cannot be a valid

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Time: 3 Hours ] [ Maximum Marks: 100

Part-A can be free trade policy or protective trade policy. A

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PART–A Banks with a view to enhancing the credit worthiness

Evaluate the role of International Commodity (a) Agriculture

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Part-A provides numerous opportunities also which include

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Section–A the company. Business are increasing when going

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