Business Environment And International Business : Practice Questions and Answers

The correct answer is C: Both Statement I and Statement II.

India's foreign trade policy is designed to promote exports and regulate imports to strengthen the economy. The DGFT, under the Ministry of Commerce and Industry, is the apex body responsible for formulating and implementing the foreign trade policy in India.

The correct answer is B: World Trade Organization (WTO).

The WTO is the only global international organization dealing with the rules of trade between nations. It aims to ensure that trade flows as smoothly, predictably, and freely as possible. The WTO was established in 1995, replacing the General Agreement on Tariffs and Trade (GATT).

The correct answer is B: The integration of economies, cultures, and societies through cross-border trade, investment, and technology.

Globalisation refers to the increasing interdependence of world economies through the free movement of goods, services, capital, technology, and people across national borders. It has accelerated since the 1990s due to liberalisation, privatisation, and advances in communication technology.

The correct answer is B: Inflation rate and interest rates.

In PESTLE analysis, the Economic component covers macroeconomic factors such as inflation rates, interest rates, exchange rates, economic growth, and unemployment levels. These factors directly influence purchasing power, cost of capital, and overall business profitability.

The correct answer is B: External factors that could harm the business.

In SWOT analysis, Threats are external factors beyond the organization's control that could negatively impact its performance. Examples include increased competition, regulatory changes, economic downturns, and technological disruptions. Unlike weaknesses, threats originate from the external environment.

The correct answer is D: All of the above.

All three statements are correct. Strengths and weaknesses are internal factors within the organization's control. Opportunities and threats come from the external environment. Together, SWOT analysis enables businesses to align internal capabilities with external conditions for effective strategic planning.

The correct answer is C: Emerging market opportunities.

In SWOT analysis, Strengths and Weaknesses are internal factors (within the organization's control), while Opportunities and Threats are external factors (arising from the external environment). Emerging market opportunities are an external factor classified under Opportunities.

The correct answer is C: BOP must always balance when all accounts are accurately recorded.

The BOP is a double-entry accounting system. Every transaction appears as both a credit and a debit. While individual accounts (current, capital, financial) may show surpluses or deficits, the overall BOP balances when all components are correctly accounted for.

The correct answer is D: Foreign direct investment.

Foreign direct investment (FDI) is a component of the capital/financial account, not the current account. The current account includes trade in goods (visible trade), trade in services (invisible trade), and unilateral transfers such as remittances and foreign aid.

The correct answer is C: When exports exceed imports, there is a trade deficit.

This is incorrect — when exports exceed imports, a country has a trade surplus, not a deficit. A trade deficit occurs when imports exceed exports. A trade surplus indicates a country sells more to the world than it buys, while a trade deficit means the opposite.

The correct answer is A: In laissez-faire.

Laissez-faire is derived from the French phrase meaning "let it be," referring to an economy with no government interference. Decisions on production, investment, and distribution are made purely by market forces of supply and demand. This differs from mixed capitalism (both government and private sector roles) and socialism (state ownership of means of production).

The correct answer is A: Balance of trade is a part of the balance of payment.

The Balance of Trade (BOT) forms part of the current account within the Balance of Payments (BOP). BOT measures the difference between a country's exports and imports of goods and services. If exports exceed imports, it is a trade surplus; if imports exceed exports, it is a trade deficit. BOP is broader, encompassing the current account (including BOT), capital account, and financial account.

The correct answer is C: a, c, and e only.

J. M. Keynes identified three main motives for holding cash: (a) Precautionary — to meet unexpected expenses or emergencies; (e) Transaction — for everyday purchases of goods and services; (c) Speculative — to hold cash in anticipation of future investment opportunities when asset prices fall.