Business Studies Test - 4

The correct answer is Policy formulation.

Key Points

Business Environment: 

• The term ‘business environment’ means the sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but that may affect its performance. 
• Business environment, has the following features: 
  • Totality of external forces: Business environment is the sum total of all things external to business firms and, as such, is aggregative in nature.
  • Specific and general forces: Business environment includes both specific and general forces.
    • Specific forces (such as investors, customers, competitors and suppliers) affect individual enterprises directly and immediately in their day-to-day working.
    • General forces (such as social, political, legal and technological conditions) have impact on all business enterprises and thus may affect an individual firm only indirectly.
  • Inter-relatedness: Different elements or parts of business environment are closely interrelated. 
  • Dynamic nature: Business environment is dynamic in that it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market.
  • Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries.
  • Complexity: Since business environment consists of numerous interrelated and dynamic conditions or forces which arise from different sources, it becomes difficult to comprehend at once what exactly constitutes a given environment.
  • Relativity: Business environment is a relative concept since it differs from country to country and even region to region.  
• Policy formation is one of the importance of Business environment not the feature. 

The correct answer is None of the above.

Key Points

Importance of business environment 

• A good understanding of environment by business managers enables them not only to identify and evaluate, but also to react to the forces external to their firms. 
• The importance of business environment and its understanding by managers can be appreciated if we consider the following facts:
  • It enables the firm to identify opportunities and getting the first mover advantage: Opportunities refer to the positive external trends or changes that will help a firm to improve its performance. Environment provides numerous opportunities for business success. 
  • It helps the firm to identify threats and early warning signals: Threats refer to the external environment trends and changes that will hinder a firm’s performance.
  • It helps in tapping useful resources: Environment is a source of various resources for running a business. To engage in any type of activity, a business enterprise assembles various resources called inputs like finance, machines, raw materials, power and water, labour, etc., from its environment including financiers, government and suppliers
  • It helps in coping with rapid changes: Today’s business environment is getting increasingly dynamic where changes are taking place at a fast pace. It is not the fact of change itself that is so important as the pace of change. 
  • It helps in assisting in planning and policy formulation: Since environment is a source of both opportunities and threats for a business enterprise, its understanding and analysis can be the basis for deciding the future course of action (planning) or training guidelines for decision making (policy).
  • It helps in improving performance: The final reason for understanding business environment relates to whether or not it really makes a difference in the performance of an enterprise. The answer is that it does appear to make a difference. 

The correct answer is Resource Environment. 

Key Points

Dimensions of business environment

• Dimensions of, or the factors constituting the business environment include economic, social, technological, political and legal conditions which are considered relevant for decision-making and improving the performance of an enterprise.
• A brief discussion of the various factors constituting the general environment of business is given below:
  • Economic Environment: Interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee are some of the economic factors that can affect management practices in a business enterprise
  • Technological Environment: Technological environment includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business. 
  • Social Environment: The social environment of business include the social forces like customs and traditions, values, social trends, society’s expectations from business, etc.
    • Traditions define social practices that have lasted for decades or even centuries. 
  • Political Environment: Political environment includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business
  • Legal Environment: Legal environment includes various legislations passed by the Government administrative orders issued by government authorities, court judgments as well as the decisions rendered by various commissions and agencies at every level of the government— centre, 

The correct answer is Relative.

Business environment is a relative concept since it differs from country to country and even region to region. 

Key Points

Business Environment: 

• The term ‘business environment’ means the sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but that may affect its performance. 
• Business environment, has the following features: 
  • Totality of external forces: Business environment is the sum total of all things external to business firms and, as such, is aggregative in nature.
  • Specific and general forces: Business environment includes both specific and general forces.
    • Specific forces (such as investors, customers, competitors and suppliers) affect individual enterprises directly and immediately in their day-to-day working.
    • General forces (such as social, political, legal and technological conditions) have impact on all business enterprises and thus may affect an individual firm only indirectly.
  • Inter-relatedness: Different elements or parts of business environment are closely interrelated. 
  • Dynamic nature: Business environment is dynamic in that it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market.
  • Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries.
  • Complexity: Since business environment consists of numerous interrelated and dynamic conditions or forces which arise from different sources, it becomes difficult to comprehend at once what exactly constitutes a given environment.
  • Relativity: Business environment is a relative concept since it differs from country to country and even region to region.  

The correct answer is Legal Environment.

Various legislations passed by the Government administrative orders issued by government authorities reflects Legal Environment.

Key Points

Dimensions of business environment

• Dimensions of, or the factors constituting the business environment include economic, social, technological, political and legal conditions which are considered relevant for decision-making and improving the performance of an enterprise.
• A brief discussion of the various factors constituting the general environment of business is given below:
  • Economic Environment: Interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee are some of the economic factors that can affect management practices in a business enterprise
  • Technological Environment: Technological environment includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business. 
  • Social Environment: The social environment of business include the social forces like customs and traditions, values, social trends, society’s expectations from business, etc.
    • Traditions define social practices that have lasted for decades or even centuries. 
  • Political Environment: Political environment includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business
  • Legal Environment: Legal environment includes various legislations passed by the Government administrative orders issued by government authorities, court judgments as well as the decisions rendered by various commissions and agencies at every level of the government— centre, state or local. 

The correct answer is The Indian economy was mainly agricultural and rural in character.

Key Points

• The economic environment in India consists of various macrolevel factors related to the means of production and distribution of wealth which have an impact on business and industry.
• These include:
  • Stage of economic development of the country.
  • The economic structure in the form of mixed economy which recognises the role of both public and private sectors.
  • Economic policies of the Government, including industrial, monetary and fiscal policies.
  • Economic planning, including five year plans, annual budgets, and so on.
  • Economic indices, like national income, distribution of income, rate and growth of GNP, per capita income, disposal personal income, rate of savings and investments, value of exports and imports, balance of payments, and so on.
  • Infrastructural factors, such as, financial institutions, banks, modes of transportation communication facilities, and so on.

The correct answer is All of the above.

Key Points

• In order to solve economic problems of our country, the government took several steps including control by the State of certain industries, central planning and reduced importance of the private sector.
• The main objectives of India’s development plans were:
  • Initiate rapid economic growth to raise the standard of living, reduce unemployment and poverty
  • Become self-reliant and set up a strong industrial base with emphasis on heavy and basic industries
  • Reduce inequalities of income and wealth
  • Adopt a socialist pattern of development — based on equality and prevent exploitation of man by man

The correct answer is The Government reduced the number of industries under compulsory licensing to ten.

Key Points

• As a part of economic reforms, the Government of India announced a new industrial policy in July 1991.
• The broad features of this policy were as follows:
  • The Government reduced the number of industries under compulsory licensing to six.
  • Many of the industries reserved for the public sector under the earlier policy, were dereserved.
  • The role of the public sector was limited only to four industries of strategic importance.
  • Disinvestment was carried out in case of many public sector industrial enterprises.
  • Policy towards foreign capital was liberalised.
  • The share of foreign equity participation was increased and in many activities 100 percent Foreign Direct Investment (FDI) was permitted.
  • Automatic permission was now granted for technology agreements with foreign companies.
  • Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India

The correct answer is Licensing for imports and experts.

Key Points

• Liberalisation: The economic reforms that were introduced were aimed at liberalising the Indian business and industry from all unnecessary controls and restrictions.
• They signalled the end of the licence-pemit-quota raj.
• Liberalisation of the Indian industry has taken place with respect to:
  • Abolishing licensing requirement in most of the industries except a short list,
  • Freedom in deciding the scale of business activities i.e., no restrictions on expansion or contraction of business activities,
  • Removal of restrictions on the movement of goods and services,
  • Freedom in fixing the prices of goods services, reduction in tax rates and lifting of unnecessary controls over the economy,
  • Simplifying procedures for imports and experts, and
  • Making it easier to attract foreign capital and technology to India.

The correct answer is It helped in the increase in Public sector wealth.

Demonetisation had no effect on Public sector wealth.

Key Points

• The aim of demonetisation was to curb corruption, counterfeiting the use of high denomination notes for illegal activities; and especially the accumulation of ‘black money’ generated by income that has not been declared to the tax authorities.
• Features
  • Demonetisation is viewed as a tax administration measure. 
  • Demonetisation is also interpreted as a shift on the part of the government indicating that tax evasion will no longer be tolerated or accepted. 
  • Demonetisation also led to tax administration channelizing savings into the formal financial system. 
  • Another feature of demonetisation is to create a less-cash or cash-lite economy, i.e., channeling more savings through the formal financial system and improving tax compliance.