QUESTIONS AND ANSWERS FOR 6 COURSES

1. BUSINESS LAW

2. INTERNATIONAL BUSINESS

3. BUSINESS POLICY & STRATEGY

4. ENTREPRENEURSHIP DEVELOPMENT

5. COST ACCOUNTING

6. FINANCIAL ACCOUNTING

BUSINESS POLICY AND STRATEGY

QUESTION 1:

Assume that you are the strategic planning manager of a new organization. Discuss the factors that you will put into consideration in formulating strategies for your organization.

SOLUTION:

The factors to be considered in establishing strategies by an organization will include the following:

a. The desired return on investment and other performance criteria

Normally all entrepreneur will have in mind the rate of returns he expects from an investment. This may be in the form of revenue, prestige or any other criteria with which to measure the performance of the organization based on the objectives earlier established. The desired return will be propelling factor in establishing strategies for an organization.

b. The Scope Of the Strategy

This has to do with whether the strategy is for short medium or long term; whether it is for a unit of the business or it is for conglomerate and whether it is for a locality or to covert previous area of operation. The strategies to establish in each of these situations may of necessity differ.

c. The Industries To Be Entered Into:

This will have to do with the nature of the industries, the complexity and the entry requirements. If an organization wants to enter into a fully developed and complex industry, the strategies to be formulated will, of necessity, differ from those required in an infant industry, or an industry that is relatively simple in nature. Consider for instance establishing a pharmaceutical industry and a poultry farm. While the requirements in terms of legal and standards of operation for a pharmaceutical industry and its complexity are more demanding than what a poultry farm and would entail, the strategies for either of those businesses will have to differ.

d. Geographical Location:

Areas of concern here will be nearness to raw materials and market. If the raw materials are bulky for instance, producing near the source of raw materials might reduce costs of transportation. Distribution costs will be reduced, if production is near the market or consumer or the product.

e. The Qualification of the Products to be Offered

Thing to consider here will be in the areas of whether the products will be low price, low quality, special products or products for special groups of people. Will the product involve mass production or customized made product – that is to specification and desire of the purchaser; will it be for the purchaser; will it be for the rich; the poor or the middle class; will it be for children, youths, adults or very old people?

All these factors will be put into consideration in establishing strategies by an organization.

f. The Role Of the Corporation in the total Society

Society looks up to various organizations for the provision of certain goods or services. These roles are expected to be performed to meet the expectations of the general populace of specific segments of society. Society expects some organization to provide employment while making profits and so contribute to the economic development of the nation. Others are; (i) The Occurrence of natural calamities such as earthquakes, cyclone etc. and (ii) the basic actions in which the organization may want to engage.

QUESTION 2:

Organizations operate within and are affected by some environmental factors. Discuss the internal environmental factors and how they affect organizations. What steps do firms take to overcome such effects?

SOLUTION:

Linkages between an organization and its environments.

Internal Environmental Factors:-

i. Workers

An organization depends heavily on the employees who are engaged to carry out the activities of the organization. The quality of personnel in forms of skill or expertise, experience and willingness or otherwise of the workers to perform their duties efficiently could contribute to the success or failure of an organization in achieving its aims and objectives. The organization is linked with the worker whether as individuals or as groups of individuals. The unions of workers, formal and informal groups professional associations are the areas that should be of concern to the organization. It is essential that an organization strives to attract and engage competent workers.

ii. The Shareholders

The Shareholders of an organization are the owners and they determine the mission and the policies for the organization. The degree of understanding and cooperation among the owners, the management and the other employees of an organization is very important for the overall success of the business. Even though the owners provide the capital and determine the mission for the organization, the management and work have the experience which could be used to realize the mission.

iii. Tools, machinery and equipment:

The availability of adequate working tools, machinery and equipment is very essential for the performance of the activities of an organization. The workers make use of these tools, machinery and equipment in terms of being modern or obsolete, serviceable or broken down, sufficient in numbers required all vital aspects to be given attention.

If an organization had modern equipment and machinery as well as competent staff, it will be able to produce efficiently to meet the desires of its customers.

iv. Capital Base (Financial resources)

All organizations need money for investment in capital projects and to meet operating expense. The sufficiency or otherwise of financial resources can contribute towards the failure or success of an organization in achieving its aims and objectives. Money is needed for instance to establish the business, to meet registration and operational rules and regulations, to provide for overhead, or operating costs and for meeting other contingencies.

v. Management Style

The style of management adopted by an organization will affect is operations. The management style could be in the form of autocracy, democracy or liazex faire. If an inappropriate style of management is applied in any given situation, the likelihood is that the best results will not be achieved. These internal environmental factors are to a great extent, within the control of organization. It is therefore possible to formulate policies and strategies to control such factors.

QUESTION 3:

You have been engaged as a consultant to evaluate the performance of a manufacturing firm. Discuss the essential factors you will consider in this exercise.

SOLUTION:

Performance Criteria

Various organizations are establish with different missions. From these mission statement the objectives of the organization could be derived. These objectives could include; i. Profit Maximization; ii. Leadership in the industry; iii. Customer Satisfaction; iv. Enhance Image for the Owner; v. To render assistance to the general public

Various criteria for assessing, an organization will include the following:

i. Return on Investment

ii. Sales Volume

iii. Capital base

iv. Rating by the Stock Market

v. Placement in the Industry

vi. Number of Workers Engaged

i. Return On Investment

The level of profit made by organization particularly a business concern is a criterion for assessing its performance.

When huge profits are made, the divides to be declared to the shareholders will equally be high. On the other hand, if the profit made by an organization is low or no profits are made at all, this translates to poor performance. The return in this case will be low.

ii. Sales Volume

The volume of sales by an organization can be used to assess the performance of that organization. By recording high sales on organization will earn a lot of revenue from which to meet its operating expenses and declare profits. This makes it possible for the business to operate at full capacity and even expand its operations so as to meet the level of sales. On the other hand, if the volume of sales is low, the business will be incurring losses because the revenue from the low sales may not be enough to meet operating expenses.

iii. Capital Base

The financial resources which an organization has for it various operation is often used as a yardstick for measuring its relative strength and performance. Money is required for investment in plant and other machinery needed for effective operation. Funds are also required for purchasing raw materials and other components parts and for meeting other operating expenses. A deficient capital base is a serious threat to a business.

iv. Leadership in the Industry

Being a leader in a particular industry is a mark of excellence. This placement makes the company to be respected by both the competitors and the customers. Leadership position could be as a result of a number of factors. These factors include quality of product or service, pricing, market share or being the first comer. Becoming a leader in an industry is an enviable position and often leads to a fierce battle among key operations in an industry. A good example is the battle for leadership by the three “biggest” Bank in Nigeria. These are Union Bank of Nigeria Plc, First Bank Plc and United Bank.

v. Number of workers engaged.

The number of workers employed by an organization is related to the level of operations and the degree of success of such operations. Successful operation by an organization could lead to higher profits and expansion of the business of the firms. Such expansion could lead to engaging more hands.

vi. Stock Market Rating:

The effects of the level of profits made and the stability of this operation usually affect the value of the share of such organizations. A sudden dismal perforce by a business firm result in loss of price of its share Stock Exchange Market. When the public have confidence in the operations of an organization, resulting from the level of profits declared by the firm, this confidence is normally expressed in the form of increased valuation of the shares of such organization. On the other hand, some business lose or record a fall in the price of their shares as a result of the reaction of the public to the performance of such companies.

QUESTION 4:

Why do you think policies and strategies are important to an organization?

SOLUTION:

The Concept of Strategy and Policies

Strategy Defined:

Strategy is been define as the art of planning a campaign or large military operation, it has further been defined as the art of managing an affair cleverly. Policy has been defined as a planned or agreed course of acting usually based on principles.

The purpose of strategy both in war and peace is a future stable relationship with respect to the competitor on the most favoruable possible terms and conditions. The strategic decision is the one that helps determine the nature of the business in which a company is to engage and the kind of company it is to be. It is effective for a long time and has wide ramifications. It is the most important kind of decision to be made for the company. It requires the best judgment and analysis that can be brought to it practice in making this decision while still safe form most of the consequences of error is one of the most important advantage offered by an education for business. In general terms therefore, the processes involved in the efficient management of an organization include:

i. The conception of an organization’s purpose

ii. The decision to commit an organization to deliberately chosen purpose and

iii. The efforts required to achieve the purpose decided upon.

All these are the concerns of business policy. Business strategy determines how a company will compete in a given business and position itself among its competitors. The pattern resulting from a series of such decisions will probably define the central character and image of a company, the individuality it has for its members and various specification of particular objective to be attained through a timed sequence of investment and implementation of decision and will govern directly the deployment or redeployment of resources to make these decisions effective.

The need for Strategy

Christensen et al (1982) has noted that the uniqueness of a good general manager lies in his ability to lead effectively organizations whose complexity he can never fully understand, where his capacity to control directly the human and physical force comprising that organization are severely limited, and who he must make or review and assume ultimate responsibility for present decision which commit concretely major resources for a fluid and unknown future.

QUESTION 5:

The mission of an organization affects the strategies and policies established by that organization. Discuss this statement with particular reference to Blau and Scott.

SOLUTION:

Mission and Purpose – Mission provides the director for an organization. The mission is normally set by the top management of an organization or in some cases by the board of Directors. The mission directs attention to such issue as where are we going, what do we want to be achieved? The mission of an organization could be to render services to people; to make maximum profit, product diversification; to attain a large share of the market; or to be a leader in the industry. Mission is the primary consideration upon which the policies and strategies of organization are based. Blau and Scott have identified four major types or organization according to the group which receives the greatest amount of benefits from the organization’s existence. These groups are discussed below:

i. The Business Concern

These are business organizations which benefit the owners, the employees most of those who transact business with them. The primary aim of a business concern is to make profit and declare dividends to its owners, pay adequate salaries and allowance to its employee and meet their obligations to their customers. Example of such organizations are Level Brothers, Nestle Foods, Cadbury and PZ.

ii. Mutual Benefit Association

This is an association that benefits the members themselves. Such an association offers goods and services exclusively to it members. The main objectives is to cater for the welfare of its members and not necessarily to make profits. Such associations are usually made up of similar interests. Examples are Social Clubs and associations like Island Club, Ikoyi Civil Service Club etc. They are usually voluntary organizations.

iii. Service Organization

These are organization that render services to those who require such service. These organization are established to render satisfactory services to those who may require such services. In the process, they may make profits. Examples are health education institutions. Schools and hospitals are built to provide services to those who require such.

iv. The Common Weal Organization

This is an organization that benefits society in general; such organization are not established for a section of the society, neither are they the members only nor are they for those who can afford such services. They are not established for profits making. Examples are the Police, Civil Defence and Fire Services. On the bases of the above objectives which are derived from the mission of the various organization discussed, the organization establish their policies and strategies, it will be expected that differing mission would result in varying strategies.

QUESTION 6:

Owena Bank was operating successfully as a commercial bank. As a result of some problems the bank began to make losses and was heading towards total collapse. Discuss and evaluate the strategies established by the bank to save it from collapsing.

SOLUTION:

This Owena Bank Plc was one of the indigenous and government established bank, it took off with high hopes. As a result of various problems ranging from interferences on management faulty recruitment and poor banking attitudes, the bank was heading for total collapse. Here is the text of the case study.

Owena Bank Back from the brink of collapse.

By 1992, it had become clear that the management of Owena Bank Plc had lost grip on things and that the bank was heading for total collapse. From a profit before tax of about N2.9 million in 1991, it plunged into a loss of about N11.7 million in 1992 and about N215.8 million in 1993.

Under a new management, some visionary performance driven changes were made in the operations of the bank. Some far reaching restructuring which reached its watershed in 1993 was undertaken. Management returned to the path of prudent credit risk management. The result was a profit before tax of N43.9 million in 1994.

The strategy to turn the bank around in the THREE PHASES – In Phase One, we took the knife to the organization in a major Surgical Operation which exercised terminal problems in our staffing, assets, procedures, culture and attitude. In the SECOND Phase, we have convalesced sufficiently from surgery and are establishing and re-acculturating into new skills, attitudes and values, with emphasis on productivity and the operational approach. In the dispensation, we are to develop a ravenously concentrated view of the customer as the KING and focus on all our activity. The objective will be to provide total quality in our service and to do it right the first time (and every time).

In our Third and next phase, the ASCENSION phase, we will take the battle to the fore front of the industry. Our objective is to become one of the leading FIVE banks in Nigeria in terms of prudently acquired profitability and return to our stakeholders. To nerve our fighting arm for the ascension, we will acquire customer focused technology. To this end we will be putting to the market in early 1996, a new equity issue already approved at the last shareholders meeting.

QUESTION 7:

(a) Discuss the distinguishing characteristics of objectives set by private and public sector enterprises.

(b) How do these differences affect the policies and strategies of such enterprises

SOLUTION:

Difference between Private and Public Enterprises

Private Enterprises – These are firms owned by individuals or group of individuals. The primary objective of such enterprises is to make as much profit as possible. The capital is provided by the individuals themselves and they share the profits or bear the losses as the case may be. Such enterprises are managed by proprietors themselves or by a board of directors appointed by owners. Private enterprises are very common in West Africa. Such enterprises vary considerably.

Public Enterprises-these are business firms owned by government. The owners may be federal, state or local governments. The government provides the capital for running them. Usually the primary objective of such enterprises is to provide the goods and services at reasonable prices, and not necessarily making the highest profit possible.

Public Enterprises versus Private

Business Objectives: - The non-profit objectives of public enterprises differ in many respects from those of private business enterprises. These objectives tend to be more tangible and subjective than the objectives of private business enterprises which are measurable. A government agency may have as one of its objectives as the promotion of a balanced development of the economy. This goal is capable of various interpretations by different people. It is also difficult to measure. The objective of an education foundation may be to promote the quality of graduate study and research. But what are the yardsticks for measuring the quality of graduate study and research?

Business objectives are measurable in terms of sales volume, level of profits, share of the market enjoyed by the business. As a result of the differences in the objectives of public and private enterprises, the policies and strategies developed by such organization do differ significantly.

QUESTION 8:

Discuss the divestment strategies adopted by UTC Nigeria Plc. What lead to the adoption of such strategies by UTC. Evaluate the strategies.

SOLUTION:

U.T.C divestments from major subsidiaries has been chosen for the purpose of applying strategies by a business conglomerate as a measure to survive the effects of the macro-economic environment. The case is as follows; - U.T.C Nigeria Plc, a leading conglomerate is to divest from three of its subsidiaries and also rationalize its main operations into only four core areas because of the adverse effect of the macroeconomic environment on its operations. The subsidiaries are Area Metal Containers Ltd, in which it holds 54.8% equity, Henrich Schroeder (W.A) Ltd. Domain long and Amalgamated Engineering Ltd, in which it holds 60% of its equity while it will dispose UTC Aluminum and restructure the operations of its motor division among others to reflect current realities in the operating environment.

The managing director of the company, Mr. Kole Funsho said in Lagos sometime in the past that the measure become imperatives to refocus the company towards fewer but high-value-added process and service businesses. Under the new strategic refocusing, the company is to concentrate on food which includes animal husbandry and meat processing, bakery, fast food, vegetable farming and processing and automotive batteries.

Funcho said the restructuring exercise would enable the company rationalists business to eliminate drains on its earnings and cash flow reduce its branch network to cut cost, reduce its debt profile to a tolerable level, dispose assets that were surplus to its operating requirements and recapitalize the business for growth. The company’s diversification from trading concerns in the 1980 led it to a lot of activities and businesses in its search for strategies and in a bid to dominate all significant steps in the value chain of business.

The current difficulties in the operating environment have however left the company with some weaknesses of the strategy as the development has overstretched its financial and managerial resources. Funsho said, in order to reposition the company successfully, the Board and management would ensure that staff and public have a clear vision of their future direction and evolve a key management focus among others.

QUESTION 9:

Discuss some of the external environmental factors in the present Nigerian economy. How do these factors impact on the performance of businesses.

SOLUTION:

External Environment Factors

The external environmental factors are not under the direct control of an organization. Such factors can affect an organization’s activities and an organization can also influence such factors. These factors are enumerated thus:

a. Government policies and legislation:

In an attempt to control the activities of various participants in businesses and to protect the interest of all parties, government makes some rules and regulations. Such legislations could be on fiscal and monetary policies, industrial safety, labour relations, environmental protection, wages, price and employment and consumer protection. These legislations affect businesses one way or the other but the laws are expected to be obeyed. To enforced compliance with government legislations, various agencies have been established. Examples are NAFDAC, Customs and Excise, the Police Force, Standards Organization of Nigeria and Corporate Affairs Commission.

It is the responsibility of individuals and organizations to familiarize themselves with the various legislation and comply with them. Failure to comply has resulted in those concerned being penalized. Recall the experience of JECON, a manufacturer of electrical bulbs which fail to meet the standards set for such products and the closure of the premises of the firm by government agencies.

The inability to meet the required capital base for banks is one of the reasons for the withdrawal of the operating licenses of some banks. Educational and health institutions and factories are expected to meet certain condition before they can operate.

b. Technology:

As a result of advancement in science and technology, radical changes have taken place either in the machinery and equipment used or in the technique of doing certain things. It is necessary for business operation to be abreast of latest developments in technology. Organizations have to know the new developments in technology acquire the new machinery and equipment and should also endeavor to train and retrain their workers in the modern ways of doing things. Failure to do these may result in the organization being branched old fashioned and therefore rejected by its customers or the organization may not be able to produce efficiently and compete effectively with other producers. For instance, with the introduction of the computer in banking operations, banks that are unable to computerize their operations stand the risk of losing some of their customers.

c. Competitors

Producers of goods and services compete for materials, personnel, market and funds. The scope of the market in which these competitors operate, the size and complexity of the market are of concern to the individual operators. If the competition is very keen, the likelihood is that only the strong actors will survive. Many manufacturing industries and financial institutions are adversely affected by competition in those sectors. Consider the completion in the beer and soft drinks industries. Organizations are concerned about the present share of the market they are enjoying and the desired placement in the future. In an attempt to protect its present share of the market, a competitor may increase its after sales services, improve its distribution channels and offer discount to its customers. All these are aimed at working the competitors have an edge over his rival.

d. The economy

The economic system under which a firm is operating and the state of the economy are important factors to be considered. The economic system could be capitalist, socialist or mixed. In the each of these systems; investment, earnings and therefore profits and ownership of business will differ. Also, the economy could be in a healthy or an unhealthy state. During the periods of economic boom, income levels are high and so the demand for goods and services make a lot of profits. The reverse will be the case during a recession.

e. Political Environment:

This has to do with the political system and the type of government that is in power. The degree of stability in the political environment is also to be considered. When there is political stability, there is continuity in the leadership and therefore in government policies.

This makes it possible for organizations to be able to plan ahead for their future operations. If however if there is political instability, there will be frequent change in leadership and in government policies. To predict the future and make plans ahead will be very difficult. The investment climate will be unfavourable.

f. Socio-Cultural Environment:

Organizations operate with some socio-cultural environments. The beliefs, norm, values and customs of the community within which an organization is operating have to be taken into account if the organization is to operate successfully. The product is services to offer to the consumer in a particular locality and the overall activities of the community.

g. Ecological Factors:

These have to do with the climate, geological and other natural occurrences in the area where an organization is located. Such features as the occurrence of earthquakes, cyclones, erosion, or drought will affect the types of products and services to offer in such area. Extra precautionary measures may be required for locating and establishing a business in area where the geophysical factors are unfavourable.

QUESTION 10:

Discuss the main characteristics of effective policy. And ii. Enumerate and explain four (4) policies that the University of Abuja has to ensure its effective operations.

SOLUTION:

COST ACCOUNTING

Question 1:

Cost Accounting involves: a. drawing up balance sheet b. writing –off of costs c. ascertaining of cost d. preparation of statement of value added e. annual audit of financial statements.

Answer:

C. Ascertaining of cost

Question 2:

Cost accounting is an integral part of a. Financial accounting b. forensic accounting d. treasury accounting d. historical accounting e. management accounting.

Answer:

e. Management accounting.

Question 3:

One of the following is Not an objective of cost accounting; a. to provide information to aid control b. to ascertain cost and facilitate pricing c. to provide information for decision making d. to investigate fraud e. to assist in planning.

Answer:

D. To investigate fraud

Question 4:

Material costs do not include cost of ; a fixed assets b. raw materials c. work in progress d. packing materials e. cleaning materials

Answer:

A. Fixed assets

Question 5:

Which one of the following is a direct expense? A. director’s salary b. cost of hiring special equipment for a particular production order c. advertising expenses d. electricity expenses e. insurance premiums.

Answer:

B. Cost of hiring special equipment for a particular production order.

Question 6:

In classifying costs by elements, we have materials, labour and Expenses

Question 7:

The addition of all direct costs is known as Prime cost

Question 8:

Cost which are fixed for a given range of activity level but which change discretely for ranges of activity levels beyond the given ranges are called Stepped fixed cost

Question 9:

Costs which may be saved by the adoption of a given alternative option are known as Avoidable cost

Question 10:

Cost which vary in direct proportion with changes in activity levels are called ..Variable cost

Question 11:

The installation of a costing system is a major move in a business. You are required to discuss the problems of installing such a system.

Answer:

The following factors define different problems for cost accounting systems:

1. Size of organization

2. Type of product/service

3. The production process

4. The methods of manufacture

5. Availability of staff

Other specific problems include:

1. Definition of responsibility

2. Definition or designation of cost centers

3. Compilation of a comprehensive cost system

4. Availability of staff

h. Labour hours worked

i. Machine utilization time

j. Scrap

k. Rectification cost etc.

5. The difficulty of accurately classifying cost

Question 12:

Outline possible problems which may be encountered as a result of the introduction of a system of cost control into an organization.

Answer:

1. The overall simplistic assumption of cost linearity for variable cost per unit is not practical.

2. Fixed cost can change as activity levels change.

Question 13:

Enumerate the differences, if any, between financial and cost accounting

Answer:

1. Nature of costs/revenue; Cost accounting predetermined estimates standards and budgets while financial accounting is a historical and past costs/revenues.

2. Users of information; Cost accounting is a management of a business enterprise while financial accounting is management as well as external stakeholders such as shareholders, creditors, debtors, investors etc.

3. In Objectives: cost accounting provides information to aid planning, decision making and control while financial account satisfy the stewardship function of management

4. In Conformity to concepts and standards; cost accounting – no need to comply with standards and concepts while financial accounting absolute need to comply.

5. Scope and form of presentation; Cost accounting is determined by management on the basis of relevance and cost benefit considerations while financial accounting is determined by concepts, standards and legal provisions.

Question 14:

Describe three different methods of cost classification and explain the utility of each method.

Answer:

The cost of products or services is determined using several methods. The following are the well established methods of costing.

1. Job/Batch costing

2. Process costing

3. Service cost

4. Contract costing

Question 15:

Cost classifications used in costing include: a. period costs b. product costs c. variable costs d. opportunity cost. Explain each of these classifications, with examples of the types of costs that may be included.

Answer:

1. Product cost are costs that are identified with goods produced or purchased for resale. Examples of products costs are; cost of raw materials, cost of production wages , cost of production overheads such as electricity, depreciation of plant, rent of factory premises etc.

2. Period costs are costs incurred and charged against profit and a period, and not included in cost for stock valuation purposes.

3. Opportunity Costs are values of benefits forgone or sacrificed in favour of alternative courses of action.

4. Variable Cost – these are costs which vary in direct proportion with changes in activity levels. For example, cost of raw materials, direct wages and direct expenses such as royalties.

Question 16:

Cost may be classified in a variety of ways according to their nature and the information needs of management. Explain and discuss this statement, illustrating with examples of the classifications required for different purposes.

Answer:

Cost can be classified variously for different objectives.

a. Classification according to element of cost – materials cost, labour cost and expenses

b. Classification as direct or indirect – Direct material cost , direct labour cost, direct expenses, indirect material cost, indirect labour cost and indirect expense

c. Classification according to function – production overheads, selling overheads, marketing overheads, distribution overheads, administrative overheads, search and development overhead.

d. Classification according to behaviour; fixed cost, variable cost, semi-fixed/semi-variable or mixed cost, stepped fixed cost

e. Classification as product cost or period cost ; Product Costs, Expired Product Cost, Unexpired Product Costs, Period Costs.

Question 17:

Materials can be defined as all the tangible material assets of organization other than its A. Work in progress A. Raw Materials C. Cash D. Fixed Assets E. Finished Goods

Question 18:

The work of the storekeeper does not include A. Receiving stock items B. Issuing stock items C. recording of Stock items D. Custody of stock items E. Selling of Stock items

Question 19:

Purchase orders are issued by A. Quality Control Manager B. Procurement Manager C. Stores Manager D. Cost Accountant E. Production manager

Question 20:

When ordered materials are received, they are brought into stores via A. Material Requisition B. Local Purchase Order C. Goods Received Note D. Tenders E. Materials Issue Note

Question 21:

Under the First In First Out method, store issues are priced using the prices of A. the last batches received into store B. the first batches received into store C. the middle batches received into store D. the average of the first and last batches received into store E. the next batch to be received into store

Question 22:

The stock valuation method that assumes the stocks are issued in reverse order of receipts is called Last in Frist out (LIFO)

Question 23:

What is the level of stock determined, below which quantities are not expected to fall in the store called? Minimum Stock Level

Question 24:

The optimum quantity of stock that should be ordered from suppliers at any one time is known as Economic Oder Quantity

Question 25:

What is the name of the document which the storekeeper uses in recording the receipt and issue of materials called? Bin Card

Question 26:

The system whereby bits of store items are counted at frequent intervals so that by year end all items would have been counted at least once is known as Continuous Stock Taking

Question 27:

Briefly explain the following, bringing out clearly the formulae of calculation where appropriate;

i. Minimum Stock balance – this is the lowest level at which stock may be allowed to fall. It is not prudent to allow stock to fall below the minimum stock level. Mathematically, the minimum stock level may be calculated as Minimum stock level =Re-order-(average consumption x average delivery period)

ii. Maximum stock balance –this is the largest possible quantity of stock that may be in store at any given time. It is not prudent to maintain a quantity of stock above this level.

Mathematically, it is computed as Maximum stock level=Re-order level + Re-order quantity – minimum x minimum consumption delivery period.

iii. Re-order level Stock – This is the level at which an order will be placed for additional supplies of material so that delivery will be made before the business runs out of stock. Formula Re-order stock level = Maximum consumption x maximum delivery period

iv. Average stock level-this is the midway between the minimum stock level and the maximum stock level. Mathematically, it is computed as; Average stock level=minimum stock level + maximum stock level/2

Question 28:

Under labour incentive schemes, bonus is paid A. every December B. each time the company received a large order C. to very good employees D. Anytime there is surplus money in the treasure E. Over and above the basic pay to reward extra time worked or time saved

Question 29:

Overtime is A. Work done over a period of time B. Time spent in calling over production figures C. Time spent by the employee working beyond the normal working hours D. Time spent by the employee in the changing room E. Time when the production machines are idle

Question 30:

PAYE is an acronym for A. pay as you engage B. Pay According to your expectation C. Pay All Your Employees D. Payment at year End E. Pay As You Earn

Question 31:

Ghost Workers are A. former employees who are now dead B. employees who were involved in accident whilst working C. employees always on sick leave D. Workers who do not exist but in whose names salaries are being paid E. Those who work in the cemetery

Question 32:

Gross wages are calculated by adding; A. all allowances to basic wages B. All deductions to basic wages C. pension deduction to PAYE D. bonuses and allowances together E. Twelve months wages together

Question 33:

Time allowed minus time taken equals Time saved

Question 34:

Labour costs incurred on employees engaged in directly transforming the raw materials into finished goods is referred to as Direct Labour

Question 35:

The extent at which employees leave an organization is known as Labour Turnover

Question 36:

The product of hours worked and wage rate per hour is Basic Wage

Question 37:

The card issued in the name of each employee which is inserted into an electronic recording machine to capture time spent at work by the employee is called Clock Card

Question 38:

Outline five causes of labour turnover

Solution: 1. Dissatisfaction with the job, wages, hours of work or working condition 2. Discontent due to the relationship with supervisors and or colleagues 3. Lack of promotion opportunities 4. Personal matters e.g. ill health, marriage, pregnancy, moving to a new area 5. Sometimes employees are discharged due to redundancy, incompetence, lateness, and absenteeism ;

Question 39:

What is the difference between individual incentive scheme and group incentive scheme? Outline three advantages and three disadvantages for each of the two types of incentive schemes.

Solution:

Question 40:

Explain the difference between labour cost accounting and payroll accounting

Solution: Labour cost accounting realates to the determination of the cost of labour chargeable to various jobs, customers, clients and clients and overhead accounts. Under labour cost accounting, the objective is to ascertain the labour cost that can be charged to products and services. While payroll accounting relates to the process of computing the amount of earnings of employees as well as the various payments on behalf of employees:

Question 41:

List examples of labour turnover cost

Solution: A. Advertising for personnel and interviewing expenses B. Re-imbursement of removal and settling in expenses removal of furniture to new house and subsistence allowance between date of commencement and date of moving C. Tranining, including the new employees’ wages during the training, period, the wages and salaries of instructors, materials used in the training process D. Machine break-down E. Pension scheme administration etc.

Question 42:

Explain seven (7) ways of avoiding or reducing labour turnover

Solution: 1. Regular Satistics should be provided analyizing labour turnover 2. Develop better human relationship 3. Hold annual medical check-ups 4. See that the working environment is congenial 5. Introduce high wages 6. Consider fringe benefits

Question 43:

An interlocking accounting system has A. various ledger relating to one another B. separate set of financial ledgers and separate set of costing ledger C. accounting entries locked up in the ledger D. Different ledger for direct expense and indirect expenses E. a single set of ledger servicing dual purpose

Question 44:

A trail balance is A. the set of accounting records presented at court cases B. an account prepared to determine a company’s profitability C. list of account balances – both debit and credit sides balance D. the balance of the cost ledger control account E. a statement of balances on bank accounts

Question 45:

What is national charge? A. a charge on the assets of the company B. a government charge to be paid by the company C. charges introduced to reduce tax liability D. charges which though not payable are meant to reflect the normal costs of running the business E. expected income which may be recognized in the accounts.

Question 46:

In reconciliation of profits disclosed by interlocking accounts, what are purely financial matters? A. items involving cash transactions B. Balance sheet items C. Matters relating to the banks D. Salaries and wages paid to casual workers E. Financial matters outside the scope of production

Question 47:

What is a control account? A. An account in the main ledger summarizing the subsidiary ledger accounts B. The account maintained by the financial controller C. An account maintained by the Cost controller D. A separate account for monitoring factory performance E. A secret account for monitoring factory performance

Question 48: A system where a set of accounts is kept for both financial and costing transactions is known as Integrated Accounting Systems.

Question 49: In the accounts manual, processing of large mass of data under different accounts heads are made possible through the use of Accounts codes

Question 50: Raw materials issued to production but yet to reach the finished state at period and is to be found in which account? Work in Progress Account

Question 51: The conflict between the profit figures arrived at under the financial account and cost account ledger is settled by way of Memorandum Reconciliation Statement

BUSINESS LAW

Question 1:

What is a contract and what are its essential element?

Answer:

A contract is an agreement made between two or more persons which the law will enforce, in other words, a contract is set of promises between two or more persons, which the law will enforce. What distinguishes a contract from other forms of agreement is the element enforceability. This means that if a party fails to honour or discharge his promise, the other party may take action to enforce it in the law court.

The elements of a contract are offer, acceptance, consideration and the intention to create legal relations, unless all the elements are present, there is no contract in law. The elements will be considered one after the other.

Offer: - An offer is a proposition made by one part (Offeror) to another (Offeree) indicating his willingness to be contractual bound on certain terms provided that those terms are accented by that other party. An offer may be made expressly or implied from the conduct of a party, it may also be made to a particular person or to the public at large. An offer was made to the public at large in Carlill v. Cabolic Smoke Ball Co.

Acceptance: For a contact to exist, the offeree must accept all the terms of the offer without equivocation, qualification or addition. An acceptance is the final expression of assent to the terms of an offer. Any qualification, modification or addition to the terms of the offer will amount to counter offer which destroys the original offer. In Hyde v. Wrench, the defendant offered to sell an estate to the plaintiff for $1000 and the plaintiff accepted to pay $950. It was held that the plaintiff had rejected the original offer and that there was no longer any offer for him to accept.

Consideration: For a party to enforce an agreement, he must show that he has furnished consideration for it, hence the, dictum that; consideration must move from the promise. Consideration is an act or forbearance of one party for the act or forbearance of the other.

Simply put consideration is the price which is paid for the promise of another. It is the contribution of a party to the contract. It may be in form of an act, a promise, forbearance, detriment or benefit. Consideration may executor or executed.

Intention to create legal relations: Not every agreement which contains an offer, acceptance and consideration can be regarded as contract. For an agreement to give rise to a contract both parties must have intended to hold themselves bound by the agreement. The general presumption regarding social and domestic agreements is that parties do not intend to be bound legally. In Balfour v. Balfour a husband promise to give the wife $30 monthly until he is able to take her to his new station, it was held that the wife could not enforce the promise.

Question 2:

Magic Paint Limited, a manufacturer of Magic Pain advertised thus; “One bucket of Magic Pain will do more than two bucket of others. Awuf don jam correct. Mr. Builder bought 1000 buckets of the paint on the strength of the advertisement and discovered that the claim Magic Paint Limited was false. Car Mr. Builder enforce the Statement against Magic Paint Limited.

Answer:

The main legal issue in this question is whether the statement by Magic Paint that “one bucket of Magic Paint will do more than two buckets of others. Awuf don jam correct” is intended to create legal relations or is a mere puff or promotional gimmick.

The determination of the question whether an agreement is meant to have legal relations depends on the overall facts of each case. The first consideration is whether the agreement relates to a social or commercial setting. The second consideration is whether the statement is definite enough to be taken seriously by a reasonable man. The fact that the statement here was made in a commercial setting is not conclusive. The presumption that business or commercial dealings are intended to be binding on the parties can be easily rebutted because of its vagueness. For instance, the comparison between Magic Pain was not made with reference to any particular paint.

Also, the language Awuf don jam correct is a clear indication that the advertisement must have been meant to simply excite the interest of prospective buyers. The position might have been different if the advertisement had simply read “if you buy Magic Paint to paint your house, we guarantee that it will last for seven years”. Furthermore, it is illogical for Mr. Builder to buy 1000 buckets of paints without any prior trials of its quality.

Question 3.

What are the elements of a valid offer in the law of contract?

Answer:

An offer is a proposition made by one part (Offeror) to another (Offeree) indicating his willingness to be contractual bound on certain terms provided that those terms are accented by that other party. An offer may be made expressly or implied from the conduct of a party, it may also be made to a particular person or to the public at large.

1. It must be definite, certain and unequivocal otherwise the proposition will be regarded as an invitation to treat. For instance if A ask B will you buy one of my cars and B answers Yes, there is no offer capable of being accepted. This is because A has not disclosed the price and which of his cars. At best A at this stage is only trying to see whether he can get someone to buy one of his cars in case he decides to sell.

2. The offeror must be willing to be committed to the offeree as soon as the latter accepts the proposition: otherwise there is no offer but an invitation to treat. In Payne v. Cave, it was held that an advertisement stating that an auction will be held is not an offer but an invitation to treat. When the auctioneer commences and asks for bids from those attending, the bids are the offers. A contract comes into existence when the auctioneer knocks down his hammer.

3. The Offer must be made by a capable person: In Ajayi Obe v. Executive Secretary Family Planning Council of Nigeria, the plaintiff was interviewed for a post in the defendant’s establishment. The Chairman of the interview panel (Instead of the Secretary) told the plaintiff that he had been offered the job but no letter of offer came from the secretary. It was held that there was no valid offer because the offer was not made by a capable person.

4. The offer must be communicated to the other party. This is quite logical, since the offeree must have knowledge of the offer before he could accept or reject it. The rule is hat there is no acceptance in ignorance of offer.

Question 4:

Distinguish between an Offer and an invitation to treat.

Answer:

An offer is a proposition made by one party (offerer) to another (offeree) indicating his willingness to be contractually bound on certain terms. An offer must be certain, definite and the offerer must have firmly resolved to be bound by the terms or the proposition. If there is no such firm resolve, then the parties are still in the negotiating stage. At this stage, we have what is called an invitation to treat or an invitation to make offer.

It is not always easy to distinguish between an offer and an invitation to treat. However, one important distinction between them is that while the acceptance of an offer crystallized into contract, in the invitation to treat there is no offer capable of being accented. The distinction between offer and invitation to treat has been made in some decided cases. In Fisher v. Bell, a shopkeeper displayed a flick-knife in his shop window together with a price tag. He was charged with an offence of offering a Hick-knife for sale contrary to particular statue which aimed at controlling sale of offensive weapons.

The charge was dismissed on the basis that a display of an article with a price on it in a shop window is mere an invitation to treat and not an offer.

Question 5:

Discuss fully the rules governing consideration

Answer:

Consideration is the “price” which one party pays for the promise or act of another. It has been judicially defined in the case of Currie v. Misa as consisting of some rights, interests, profit or benefits accruing to one party, or some forbearance, detriment loss or responsibility given, suffered or undertaken by the other.

The basic rule of consideration is that it must move from the promise. By this, it means that before a party can enforce a contract, he must show that he has furnished consideration for the contact. If A purchases a pair of shoes he will pay the purchase price and in return will receive the shoes. Here, each party has provided consideration. A – the money and B – the shoes. In Dunton v. Dunton: a man promised his wife from whom he had just been divorced, an allowance of $6 every month, if she would conduct herself with sobriety and in a respectable, order and virtuous manner. It was held that the wife had furnished consideration for his promise because she no longer owed him any duty to observe those stipulations.

Question 6:

With the aid of decided cases, discuss the rule that “Consideration need not be adequate, but must be sufficient”.

Answer:

Consideration is the “price” which one party pays for the promise or act of another. It has been judicially defined in the case of Currie v. Misa as consisting of some rights interests, profits or benefits accruing to one party or some forbearance, detriment loss or responsibility given, suffered or undertaken by the other.

The basic rule of consideration is that it must move from the promise. In other words, before a person can enforce a contract, he must show that he has furnished consideration for the contract. Once the acts or promises exchanged by the parties are something of value to them, the court will generally not interfere even if their economic value seem unequal. Hence, the rule consideration need not be adequate. This means that the court will not measure the comparative value of the respective considerations of the parties, nor will it declare a contract to be invalid simply because one party has got much better bargain than the other. While consideration need not be adequate, it must however be sufficient. By sufficiency, it is meant that whatever is furnished as consideration must at least, contain some elements of a bargain, which can be regarded as the price for the other party’s promise. For instance, where the thing which the plaintiff does or promises to do in consideration for the defendant’s promise is no more than something which he is already bound by contract or law to do for the defendant, in such circumstance, the mere doing of the thing or a promise to do it will cost the plaintiff nothing more and will therefore not constitute a valid consideration.

In Stilk v. Myrick, two seamen deserted a ship in the course of a voyage. The ship’s captain, who could not find substitutes, promised the rest of the crew extra wages if they would sail the ship back home. The members of the crew instituted an action to enforce the promise. Their claim failed on the ground that they had not furnished any consideration.

Question 7.

With the aid of decided cases consider whether or not there is an intention to create legal relations in the following situations:

i. Mr. Dadani a divorcée orally promised to be paying his former wife a monthly allowance of N10,000 for her maintenance

ii. Miss Bintu, a part two law students was in dire financial need. She was asked by her friend Titi to sell her bed space and promised to squat her in her own room. Two weeks after she obliged, Titi threatened to send Miss Bintu out of her room after a quarrel.

Answer:

i. The general presumption regarding a social and domestic agreement is that parties do not intent to be bound by the agreement. In Balfour v. Balfour a husband promise to give the wife $30 monthly until he is able to take her to his new station, it was held that the wife could not enforce the promise. However, there are situations when the court will enforce a contract between a husband and a wife. For instance, where the husband and wife are not in amity, for instance, where they are separated. In such circumstance, the presumption of lack of intention to enter into legal relation will be rebutted. Thus in Merrit v. Merrit, the husband who had left the matrimonial house had a discussion with the wife in his car about the matrimonial house. The wife refused to leave the husband’s car until he signed a written agreement where he undertook to transfer the house to her. It was held that the hostile relationship existing between husband and wife rebutted the presumption against contractual intention.

Based on the principle in Merritt v. Merritt, from the circumstances of the case, the court will most likely imply an intention to create legal relations in the agreement between Mr. Dadani and his former wife. Hence, Dadani is bound to pay the monthly allowance otherwise, he would be liable for breach of contract.

ii. The agreement between Bintu and Titi is a social agreement. The general rule is that such agreements are binding only in honour. A good illustration in this regard is where A and B agree to lunch together and A promises to pay for the food if B will pay for the drink. Notwithstanding the presence of consideration, the presumption of the law is that there is no intention to create legal relations in such circumstance. Such agreements are merely biding in honour. To offer a friend a meal is not to invite litigation.

However, where the performance of social agreement involves great sacrifices on the part of one or both parties, the presumption of lack of intention to create legal relations may be rebutted. In Parker v. Clark on the invitation of defendant (who is the plaintiffs uncle), the plaintiff and his wife sold their house. It was agreed that the defendants would share the living expenses with the plaintiff and that the defendant would leave the house to the plaintiffs in his will. It was held that the agreement was binding because the plaintiff had taken drastic and irrevocable steps based on the agreement. To hold otherwise would wreak untold hardship on the plaintiff.

The fact of the present case can however be distinguished from that of Parker v. Clark on the ground that there was no agreement between Bintu and Titi to jointly maintain the room. Here, unlike the case of Parker v. Clark, Bintu had not furnished any consideration for Titi’s promise. At best, Tit had acted benevolently and she is totally free to retile from her promise to accommodate Bintu without any liability. The case would have been different if Bintu had been paying Titi any amount, no matter how little.

Question 8:

With the aid of decided cases, discuss whether or not a contract exist in each of the following cases:

i. The Viagara Bottling Company advertised that the first prize in a particular promotions attracts N5 million. Mr. Lucky won the first prize at the raffle drawn at Abuja. However, the organizers failed to honour their promise.

ii. Company A and company B who are neighbours agreed to jointly contribute towards the cost of fuellng company A’s 10,000kv industrial generator for their joint use. Company B who has now bought its own generator refused to pay company A the outstanding sum of 41million form the cost of fuelling the generator.

iii. The staff of First Banking System embarked on a strike to protest against one f the new policies of the bank. The management reached a collective agreement with the workers union to reverse the policy if the strike is called off. However, the management refused to implement the collective agreement after the strike was called off.

Answer:

i. The issue to be considered here is whether the advertisement by Viagara bottling company creates a binding contact between the company and Mr. Lucky. Or was the advertisement a promotional gimmick? The test of reasonable man is applied in determining whether a statement is a mere puff or a serious and deliberate commerceial statement. In Carlill v. Carbolic Smoke Ball Co. the defendant contended that a reward of promise to anyone who used carbolic smoke ball product and still caught influenza was a mere puff, a mere statement of confidence in their product and a promise in honour. The court rejected this plea and held that the fact that the defendant had deposited some money in the bank for that purpose was cogent evident that in intended to be bound by the statement.

Applying the above principle to the fact of this case, the advertisement by Viagara Bottling Compnay would be held to be binding.

ii. There is a strong presumption that business or commercial dealings are intended to have legal effect. This is so whether the dealings involves members of the same family or not. In this regard, company A and company B are primarily into business to make profits. The agreement reached between the two parties was for the mutual benefit of their businesses since power generation is vital to effective business. Hence, they both agreed to bear obligations in furtherance of their joint interests. The fact that the two companies are neighbours is immaterial since the arrangement between them is purely commercial in nature. Based on the foregoing, company B is liable to pay Company A the N1,000,000

iii. This question raises the issue whether a collective agreement is enforceable. Collective agreement is an agreement between a Trade union and an Employer regulating conditions of service. At common law, there is a presumption that the parties to a collective agreement do not intend to enter into legal relations unless the contrary is clearly established. However, Section 2(2) of the Trade Dispute Act provides that where a collective agreement is deposited with the Minister of Labour, it becomes binding on the employers and workers whom they relate once the Minister makes the appropriate order.

In this question, we are only told that the First bank reached a collective agreement with workers union to reverse the policy. There was no indication that the agreement was signed by the parties and deposited with the Minister of Labour. Even if all these had been done, the Minister is still required to make an appropriate order in respect of the agreement. Since all the foregoing provisions of the Trade Dispute Act have not been complied with, the collective agreement between First Bank Systems ltd and its workers has no binding force.

Question 9:

Whether the law will presume an intention, to enter into legal relations in any contract depends on the circumstances of each case. In what situations will there be a rebuttal of the legal presumption in this areas of law?

Answer:

It is now beyond controversy that the element of an intention to create legal relations is a separate and distinct element of a binding contract. In some contract or agreements, the intention to enter into legal relations are apparent and obvious, however, there are others where this is not so. Therefore, the duty of the court is to ascertain the intention of the parties by using the objective test. Where both parties by their conduct do not exhibit any intention to create legal relation, the court will refuse to decree an enforceable contract. For the purpose of considering the presence or absence of contractual intention in agreements. Agreements may be divided into three classes viz;1. Social and domestic agreements; 2. Commercial agreements; and 3. Intermediate situations

The general presumption regarding a SOCIAL AND DOMESTIC AGREEMENT is that parties do not intend to be bound by the agreement. Hence in Balfour v. Balfour, a husband promised to give the wife $30 per month until he is able to take her to his new station. It was held that the wife could not enforce the promise.

The above principle however does not mean that there cannot be a binding contract between husband and wife. For instance, where the husband and wife are bitter enemies and do not live in amity, the presumption of absence of an intention to enter legal relation will be rebutted. In Merritt v. Merritt, the husband who had left the matrimonial house had a discussion with the wife in his car about the matrimonial house. The wife refused to leave the husband’s car until he signed a written agreement where he undertook to transfer the house to her. It was held that the hostile relationship existing between husband and wife rebutted the presumption against contractual intention.

IN COMMERCIAL AGREEMENTS, the law presumes that the parties intend to create legal relations and make a contract. But the presumption may be rebutted. For instance, where the promise is a mere puff or promotional gimmick, the said presumption is rebutted. Another good example is an advertisement that men who use particular toothpaste become successful and important. The presumption will also be rebutted, where the agreement itself contains a clause expressly excluding the intention to enter into legal relations such as in football pool agreements. In Amadi Pool House Group & Nigeria Pools Co., the plaintiff who was a staker claimed to have won lump sum.

The defendant successfully denied any liability by relying on an “honours clause” that the contract was not intended to be binding.

In INTERMEDIATE SITUATIONS, which can neither be described as domestic and social engagements nor a commercial agreements, the presumption is that the parties do not intend to be bound. However, the presumption is rebuttable in certain situations. For instance, in relation to collective agreements Section 2(3) of the Trade Dispute Act 1976 provided that where a collective agreement is deposited with the Minister of Labour, it becomes binding on the employers and workers whom they relate once the Minister makes the appropriate order. Based on the foregoing, it is clear that there is no hard and fact rule on when the court will imply an intention to create legal relations. Everything depends on the circumstances of each case.

There were domestic settings where the courts had implied the intention to create legal relations while there were also commercial settings where the presumption had been rebutted. Therefore, in order to ensure certainty, parties may expressly state their intention to create legal relations and even the manner adjudication such as reference to arbitration.

Question 10:

Write short notes on the followings: i. Conditions and warranties ii. In nominate or intermediate terms and iii. Fundamental term

Answer:

i. Conditions and warranties; Conditions are vital terms of a contract while warranties are relative minor terms of a contract. In other words, whilst conditions are the very important and fundamental obligations, warranties are less important or subsidiary promises. The difference between the two is that a breach of conditions entitles the innocent party to repudiate the contract while a breach of warranties merely entitles the innocent party to claim damages. If there is a breach of contract, the innocent party may treat the contract as terminated or cancelled so that he is discharged from further performing his own obligations while he can only claim damages for breach of warranties.

ii. In nominate or intermediate; there may be other contractual undertakings of complex character where it may not be easy to classify the terms simply as either conditions or warranties. For such complex transactions, the court has evolved another category of terms known as “In nominate or Intermediate term” as a hybrid between a condition and warranty. The approach of the court here is to categories a term is breached, the remedy available to the innocent party would depend on the effect its breach has on the substance of the contract. Hence, if an intermediate term is breached, the remedy available to the innocent party would depend on the effect that breach on the enjoyment of the benefits which the contract is meant to confer on the innocent party.

iii. Fundamental Terms: During the 1950s and 1960s, the courts created another spices of term called a fundamental term. A fundamental term is a term of even greater importance than a condition. It is a term, which underlies the main purpose of the contract and failure to perform it will amount not to a mis-performance, but non-performance of the contract. An example is where a tailor is asked to sew a male suit but he sews an agbada or babanringa or does something else, which negates the whole purpose of the contract. The doctrine was developed by the court to protect consumers from unreasonably wide exclusion and limiting clauses.

Question 11:

Discuss the Parol Evidence Rule and the Exceptions

Answer:

Disputes often arise between parties to a contract or the terms of the contract, for instance, on the meaning and effect of certain words or phrases, if the contract is wholly by words, it is simply a question of fact and manner of evidence for the parties to establish what they have agreed upon. The words used will be interpreted objectively. A party will not be allowed to say that he understood a word in the sense in which a reasonable person would not have understood it. If the contract is wholly in writing, the general rule is that the parties are to be confined to the four corners of the document containing the terms and will not be allowed to adduce evidence to show that his intension has been wrongly stated in the document. All that the court will do is to interpret the express terms of the agreement and give effect to them.

This rule is called the parol evidence rule. The Parol evidence rule however admits of the following exceptions, among others;

i. The rule only relates to evidence as to contents of a contract. It does not apply where evidence is introduced to show that the contract is vitiated on the grounds of illegality, duress, mistake, misrepresentation or lack of consideration.

ii. Oral evidence may be allowed for the purpose of establishing equitable defense

iii. Oral evidence may be allowed to show that the written contract has been subsequently varied or rescinded.

iv. The mere fact that a contract is reduced to writing does not mean that all the terms of the contract contained in that document.

Question 12:

When is a contract discharged?

Ii: Explain the concept of “Accord and Satisfaction”

iii. Mr. Aba has supplied Mrs. Owerri 20 consignments of Grade A reagents for industrial use at an agreed price of 20 million. Mrs. Owerri protested that the quality of the regent was grade B and wanted to reject the consignments. Mrs. Owerri however agreed to manage the reagents because of the pleading of Mr. Aba and the intervention of people of goodwill. Meanwhile, Mr. Aba is afraid that Mrs. Owerri might change her mind. Advice him on what to do to allay his fear.

Answer:

i. When parties enter into a contract, the contract does not last forever. It must at one point come to an end. The discharge of a contract means in general that the contractual relationship (bond) between the parties ahs come to an end (broken and the parties are freed from their obligations to each other under the contract. Essentially, the question whether or not a contact is discharged must be considered in relation to the terms of the contract.

ii. A contract can be discharged by agreement. Where the contract is executor, that is, both parties have not performed their obligations under the contract, and then the discharge is bilateral. Consideration raises no difficulty in a bilateral discharge for each party agrees to release under the contract. Thus each party in law surrenders something of value. Where one party has performed his obligations under the contract, either in whole or in part the other party musts prove that he has either been released by an agreement under seal or that he has furnished consideration for the promise by the other party to waive his right. This is called a unilateral discharge.

iii. It is clear from the facts of this case that Mr. Aba has breached the contract between him and Mrs Owerri by supply a grade B regent instead of grade A.

Normally, a breach of contract discharge a contact and gives the innocent party the right to repudiate it and sue for damage. However, the innocent party has a choice. He can affirm the contract and sue for damages or reach a compromise on mutually agreeable terms of settlement.

Question 13.

What are contracts in restraint of trade? In what circumstances are they binding on the parties.

Answer:

A contract in restraint of trade is one by which a party restrains his future liberty to carry on his trade, business or profession. Such restrain may arise where an employee agrees not to compete against his employer after leaving his employment either by setting up his own business or by entering the service of their competitor. The law was discouraged before due to monopolies that it may creates but now is justifiable in certain circumstances in the interests of both of the public and of the parties involved.

ENTREPRENEURSHIP DEVELOPMENT

QUESTION 1:

Evaluate the effort of the government towards the promotion and development of entrepreneurship in Nigeria.

SOLUTION:

Government is a constituted body designed to take care of the general welfare of the people governed. State of the economy is one of the ways by which a government measures how well his citizens are living. If the economy is buoyant, this translates to good living habits and vice versa. Due to slow nature of the rate of economic growth in the greater number of developing countries like Nigeria, the government has been known to assume the role of entrepreneurs by going directly into business enterprise in order to accelerate the slow rate of economic activities.

The Federal, State and Local governments are involved in almost all kinds of enterprise ranging from manufacturing, banking to transportation.

It is general believed that one of the major reasons for government participation in all kinds of business enterprise is the relative shortage of innovators and risks takers known as entrepreneurs in Nigeria. In support of this view, the former President of the World Bank once indicated in his speech. The flow of sound, economically viable projects coming forward form many developing countries, today, is not enough to enable these countries to realize the growth rate within which it is in her capacity to attain.

It is not that good investment opportunities are lacking but what is lacking is the initiative and proper organization to enable those opportunities to be realized. It could be deduced after comparing the statement with what operates in Nigeria today that this country suffers distinct shortage of industrial entrepreneurship. Another reason for their involvement is the huge capital outlay that is characteristic of some industries like the steel industry. Yet, security reasons have also been advanced. Provision of essential services, even development of different parts of the country, prevention of resources wastage when efforts are duplicate, control of the exploitative nature of entrepreneurs, provision of employment are further reasons adduced to their establishment, ownership and control of enterprises which sometimes would have been better managed by the private sector.

However, there is a renewed interest in the entrepreneur and entrepreneurship since the present democratically elected government came into power. The government has now realized that the private sector can be well positioned to perform and achieve the same goals for government’s involvement in enterprises. The government believes that friendly environment with adequate infrastructure facilities and incentives are what the private sector really need to be able to achieve most of these goals except where national security is at stake. Therefore, this is why the government is handing off most of the enterprises formerly established by her through the privatization exercise being carried out by the Bureau for Public Enterprises and National Council on Privatization. Thus, making the government to assume the role of facilitator.

QUESTION 2:

An entrepreneur does not operate in a vacuum. Analyze the external environmental factors likely to affect the entrepreneurship practice in Nigeria.

SOLUTION:

a. Government policies and legislation:

b. Technology:

c. Competitors

d. The economy

e. Political Environment:

f. Socio-Cultural Environment:

g. Ecological Factors:

QUESTION 3:

What are the major functions and characteristics of entrepreneurs?

SOLUTION:

Functions of Entrepreneurs

1. Identification of Investment Opportunities

Since the Entrepreneur is the originator of a business enterprise, he has to understand the needs and want of potential consumers which are not being fulfilled but which he can satisfy. On the other hand, identification of these opportunities is difficult because of the complex and dynamic environment he finds himself. Therefore, a sound entrepreneur must be able to choose projects that are technically and economically viable.

2. Establishment Of Business Enterprise

It is imperative for him to know which form of business he wants to establish, whether a sole proprietorship, partnership, private or public limited liability company. This depends on amount and availability of capital, degree of control needed, government laws and regulations etc.

3. Effective Utilization of Scare Resource

Resources are scare in nature and a good entrepreneur should be able to allocate and combine the factors of production proportionately to maximize profit. Hence, he must be a good resource allocator because this plays a vital role in the survival, growth and continuity of the business.

4. Organization And Management Of Human Resources

Being the head and the crew master, he should be able to plan, organize and control his employees. Coordination of activities, motivation of employees and effective leadership should be provided by the entrepreneur.

5. Risk Bearing

Risk is the probability that an anticipated or expected outcome may turn out to be wrong. Since all business are futuristic and an entrepreneur cannot fully predict the course of the business, he must be able to bear some risk before success can come his way. Business with high risks tends to give high returns.

6. Innovation

SCHUMPTER has described the role of innovation to the entrepreneur i.e. the man who undertake new combination of factors of production. Innovation is here used in the most encompassing meeting of the word to include new products and new techniques of production, the upgrading of the quality of labour force, the appearance of new skills and the improvement in the quality of management. Modern technology affects, alters and modifies every facet of human existence. Entrepreneurs should be concerned not only with technology per se but with innovation (technological changes) and its accelerated pace. Innovation involves changes in the actual production function of a given enterprise so that it permits more products for the same resources or the same amount of products for less resource. This may be in form of a new product yielding more utility rather than just a change in the amount of an old product. Such changes may also involve variations in physical capital, in the quality of labour or in the organization of given resources. In effect, an entrepreneur should be seen as a change agent, a catalyst that is highly innovative both in thought and action.

7. Creation of employment Opportunities

An entrepreneur should be an employer of labour. Being his own boss, he should have people to work with him in attaining the objectives of the enterprise, thereby creating employment opportunities.

General Characteristics of Entrepreneurs

1. Leadership – understanding of what motivates people 2. Result and task oriented

3. He must be will to take reasonable risk 4. He must be innovative and creative

5. He must be self-confident, optimistic and hopeful in his view

QUESTION 4:

Discuss the various financing and support windows available to an entrepreneur

SOLUTION:

Financing The Business Enterprise

Having good business idea does not guarantee the establishment of such a business enterprise. Therefore, for a wonderful business idea to be translated into physical manifestation, the financing of such idea is accomplished with some combination of equity capital and debt capital. Equity and ownership are synonymous. But, a small business, which forms majority of the entrepreneurship business, is often short of equity capital and is forced to resort to extensive use of debt capital. This, most times, forms the bulk of financing his business enterprise. Considering the two major sources motioned above, it could further be sub-grouped under the following methods.

1. Owners and Originators of the Company

To start a new business enterprise, it is often difficult to source fund through any other means apart from the personal funds offered by the owners of such business. This could be in the form of personal savings, personal fixed assets either acquired or inherited. It could also be by buying shares of the corporation stock.

2. Manufacturers of Original Equipment

The cost of equipment is so high because of the foreign exchange that need to be sought since these equipment need to be imported from countries. Where they are being produced here, an entrepreneur finds it difficult to purchase equipment for its production process. This invariably leads to low sales volume of this equipment by the manufacturer. As the manufacturers of equipment produce for sales, and the entrepreneurs need these equipment for use but are unable to get these equipment due to the high cost, manufacturers of these equipment sometimes sell them on hire purchase to make it easier for an entrepreneur to own such equipment. They also lease the product they manufacture e.g. Tractor, Computer etc.

3. Venture Capitalist:

This is small investor or group of investors who contributes capital money to a new or small enterprise in return for an equity position in that firm. A venture capitalist is also called high risk capital and it is usually used to provide funds for a new firm. However, a venture capitalist is neither a conventional banker nor a lender.

4. Commercial Banks

The other sources so far mentioned provide initial capitals to start off a new firm; they prefer to provide Working capital loan term loans and long-term real estate loans.

Working capital loans are to provide the business with cash necessary to care of seasonal peaks or to meet any unusual cash needs of a period less than 12 months duration. Terms loans range in length from 1-6 years being funds used to purchase a fixed asset, while real estate loans are-secured if accurate appraisals are done.

5. Relatives and Friends:

Relatives and friends will occasionally make an investment in a company through donations, gifts or other means. The advantage of this source is the relative ease and informality of security funds while the disadvantage could be in the conditions attached to such funds. For instance they may require that their son or a brother-in-law be hired as a part of the deal. This person may either be incompetent or lack the necessary skills for the position. Moreover, they may feel that they have the right to constantly advise the founder of the business.

QUESTION 5:

(a) Who is an entrepreneur and how is the entrepreneur different from a businessman and manager

(b) What is entrepreneurship

SOLUTION:

An Entrepreneur, Businessman and Manager

The entrepreneur has been described as a person who perceives business opportunities and takes advantages of the scare resources to use them efficiently. He has the zeal and ability to find and evaluate opportunities, gather necessary resources, take sequential and systematic steps towards utilizing the advantages of such opportunities. Moreover, entrepreneurs are individuals who create some sort of innovative economic activity that did not previously exist. They perceive the world optimistically. As one successful entrepreneur states “success comes to those who see the glass as half-full not half-empty”.

True entrepreneurs are more than small business owners; they build a firm and are constantly seeking outlets for their energies. Hence, it is common for those individuals to be involved in several innovative activities simultaneously. Most entrepreneurs have a high degree of integrity. Their words become a bond – a personal commitment. This allows the flexibility needed for success and the ability to hire others who can supplement the entrepreneur’s weak points.

The entrepreneur’s philosophy is that success is nothing more than picking an opportunity and then working it. The entrepreneur initiates the firm and maintains it. However, if the firm is to survive, the owner must supplement entrepreneurial enthusiasm with managerial skills to handle routine activities. Thus, the successful small business owner is both the entrepreneur and a manager. The entrepreneurial side of this owner is innovative with respect to the external environment and this ability tends to initiate many projects. On the other hand, the managerial side must constantly act as the mediator between what the entrepreneur want to do and what can be done. To be successful, one must complement the other. For instance, an entrepreneur does not worry about disasters until they are imminent whereas the manager begins planning for contingencies ahead of time.

Hence, the entrepreneur ends with such plans. Again, as the entrepreneur works best under a high degree of pressure, a manager attempts to reduce ambiguity and pressure. Therefore, a successful small business owner must combine both characteristics very well.

WHAT IS ENTREPRENEURSHIP?

Entrepreneurship is the first step taken for industrialization to take place. It is term used in connection with the innovative modern business. Innovative in the sense that it is different from a similarly existing product. Entrepreneurship has gained universal recognition as an academic discipline and significant force in the generation large employment. It takes place in any field of social endeavour, business, education, social activities, agriculture etc.. therefore, entrepreneurship is the institution involved in changing the value or satisfaction derived from resources by the consumer. Moreover, it could be defined as doing things that are already been done in a new way.

Furthermore, it should be stressed that a business enterprise should not be entrepreneurial in nature because it is new and small. A large business organization which has been in existence for long could also be practicing entrepreneurship. An example is Lever Brothers Nigeria Limited.

QUESTION 6:

Write explanatory notes on each of the following 1. Rewards and hazards of entrepreneurship 2. Attitudes of Nigerian Entrepreneurs 3. Methods of generating new business ideas

SOLUTION:

Rewards and Hazards of Entrepreneurship

These are the benefits, gains or advantages derivable from practicing entrepreneurship:

(1) Profit: When an entrepreneur sets a business enterprise, he expects to get some returns on what has been invested. Profit is therefore the excess of income over the amount invested. Reasonable profit means adequate financial recovery on investment i.e. total income less total cost.

(2) Job Security: this is the insurance that the employment has secured cannot be lost at any time if he is not willing to quite the job. Hence, the fear of being retrenched or sacked is absent in entrepreneurship. However, the business can continue as long as he is alive and doing what is right in the business.

(3) Independence: Since an entrepreneur is the originator of the business enterprise; he can make his own decision and the way he wants without waiting for a directive from someone else. He is the master of himself.

(4) Personal Satisfaction: An entrepreneur produces goods and services from his own initiative. If these products are well received by the consumers, he will feel happy, important and satisfied because those he has produced for have appreciated his, efforts. Hence a sense of accomplishment have been realized.

(5) Family employment: In Nigeria, there is widespread unemployment. A situation whereby a father has spent a lot to train his child up to the University level and the child graduates into the unemployment market, roaming the streets for white-collar jobs. If the father has a business enterprise, he will prefer the child working in enterprise to roaming the streets – it gives the opportunity to test personal commitment and ability to face challenges.

HAZARDS OF ENTREPRENEURS

These are the factors that discourage people from going into entrepreneurship

1. Financial Risk: Most people fear to dabble into the unknown and since the end product of any business is not very sure, people are scared of going into entrepreneurship. Moreover, this is because business involves some financial commitments which could either be lost if not adequately managed or recouped even with profit (if adequately managed).

2. Emotional/Social Problems

Every entrepreneur is a decision maker in his enterprise and all the personal matters, production matters and all others will eventually come to his table for solution. So, most entrepreneurs could be stressed or tensed up when these matters need attention urgently. Hence the emotional problem.

3. Risk Of Failure And Competition

There is a 50/50 chance of a business either succeeding or failing. However; some entrepreneurs are intimidated by the fear of failure and the fear of going into a level of competition when a bright business idea is conceived.

ATTITUDES OF NIGERIAN ENTREPRENEURS

The attitudes of most Nigerian entrepreneurs have not been very encouraging and have been criticized along the following lines:

1. They devote most important part of their business time to family affairs, political; meetings, settlement of community dispute and sometimes plain idleness.

2. They usually tend to extend their personal attitudes and behaviour to their business operations.

3. They always worry to make quick returns rather than wait for a long-term benefits of growth and expansion.

4. They are classified as risk averse, i.e. they tend to avoid risks most of the time

5. They always think of short-run rather than long-range goals.

SOURCES OF GENERATING BUSINESS IDEAS

They key to entrepreneurship is the ability to generate, pursue and capture the value from venture ideas. No one can call himself an entrepreneur until he has generated and at least begun to pursue venture ideas. The idea could get granted either by accident or design. It must be well conceived, expected to be evaluated to determine whether it will be selected or subjected to further modification before adoption. Generating business idea is the beginning of business enterprise. There are two major ways to generate business ideas.

GENERAL YOUR OWN IDEA

It is the act of conceiving and developing a business idea by the entrepreneur without the help of anybody (one). This idea involves thinking techniques such as visualization or brainstorming, diving inspiration and dreams.

DEVELOPING SOMEONE’S IDEA

Developing someone’s idea is far more common because virtually every successful business venture is developed form an earlier business concept. This method could involve the following:

1. Suggestion from members of his family or friends

2. Agents and experts in corporate creativity

3. Trade fairs

4. Seminars and workshop

5. Research findings from government agencies/research institutes

6. Information from mass media and business magazines

QUESTION 7:

What in your opinion are the peculiar problems with Nigerian entrepreneurs

SOLUTION:

PROBLEMS OF NIGERIAN ENTREPRENEURS

1. Political Instability:

Political instability has been asserted to be one of the major factors militating against entrepreneurship. To this end, the political and socio economic factors contribute to this factor. For example, where there are wars, the displacement of entrepreneurs location could make the business crumble. It may involve relocation and in some cases going through he same process it went though before establishment.

2. Capital Inadequacy:

In business capital is the life wire. It also follows that without capital, a business cannot be established. This is because before establishing a business, there will be the need for operational activities such as payment of workers’ salaries, maintenance of the business and so many functions and obligations of the business is expected to meet in future.

3. Inadequate Infrastructure:

Infrastructure is also necessary ingredient for the success of entrepreneur. This include the location and environment where the business is to be situated or where it is established.

Some of the infrastructural features to be put in place include power supply, building good road etc.. nearness to market also is a necessary tool that propels the efficient factoring of entrepreneur. In other words, it keep the business going.

4. Unfavourable Competition with Imported Goods:

In business generally, importation of goods cannot be eliminated. It also creates an avenue for competition in the sense that it prompts the entrepreneur to improve the quality of goods and services provided. But where the entrepreneur fails to improve in order to favorably compete with imported goods, the aim will become defeated. An entrepreneur is expected to be able to compete with external environment.

5. Inadequate manpower and Management Skill:

Entrepreneurs are usually faced with this problem. They are met with tasks but there are no capable hands to accomplish these tasks. In most cases, there may be enough manpower but they lack the skills to accomplish a task. It is a different thing to have enough management and other thing for them to have the skill for the job requirement.

6. Poor Administration of Government Assistance:

Entrepreneurs are usually left in their own because the government does not give proper attention to them. In order words assistance from the government is poor. This means that generation of capital at times will be difficult if no band is willing to grant credit facilities to them. At time, government policies, calling the entrepreneurship determine whether it will continue or not. Conclusively, where there is no government assistance, the entrepreneur may not strive.

FINANCIAL ACCOUNTING (ACC 311)

Topic: ISSUE OF SHARES

Types of Shares

(1) Ordinary Share – these are the risk takers

(2) Preference Shares – to be paid first because they are co-owners of the company and also take part in management

We have four types of preference shareholders:

a. Redeemable – the company are obliged to pay

b. Unredeemable – the company is not obliged to pay

c. Accumulative preference shareholder – this, the company will pay even if they did not pay in the current year. Thereby it will accumulate and carried over to the next year where they will pay the accruals.

d. Non accumulative preference shareholder –

TYPE OF ISSUES

1. Public Issues – this is the type that is made public to everyone and subscribers can verify the prospectus to know if the company is strong enough. There is always 5 years financial statement

2. Private placement – this is to selected persons

3. Right issue – this is an issue of shares to shareholder of the company. Those that are already have shares with the company.

4. Bonus issue – this is like jara – compensating the existing share holders with more shares.

Shares could be sold at:

i. At Par – this is the original price in the memo of association

ii. At Premium – selling above At Per

SOME TERMS:

1. Issue Price – the price for the share – the price it will be issued

2. At Par Value or nominal value or face value – this is the original or face value stated in the company memo of association

3. Right Price – this is the price or the right issue that are issued to existing holders. This price is for the existing shareholders only.

4. Premium – Company Allied Matters Acts CAMA 1990 section 120 support (At per Premium). It is the price above the At Par

5. At discount – selling at a price below the At Par and CAMA 1990 section 121 support this.

Note: Ex-Div is when you are selling your shares but you still maintain your dividend while Cum-Div is when you sell but you don’t maintain your dividend.

Debenture: - is when a company collects loan from an Individual. It is a credit like a loan. The money an individual lend to a company is called Debenture: The individual will be paid interest on a regular basis. But if the company cannot pay, it could be converted to share if accepted by the lender. When converted, it is called conversion issue.

FORFEITURE OF SHARES

If a shareholder failed to pay a call or installment on the due date, the directors of the company are empowered by section 140 of CAMA to forfeit the shares provided the defaulting shareholder have been served at least a 14 days’ notice.

INTERNATIONAL BUSINESS

QUESTION NO 1. BUS 419 2005/2006 SESSION

Introducing a new product to a host country requires a strategic approach.

a) Explain the rationale for new product introduction.

b) Itemize the developmental processes required for a new product introduction especially at international markets.

SOLUTION TO QUESTION 1. BUS 419 2005/2006 SESSSION

a) Introducing a new product to a host country

A new product may be described as a different one from an existing product and is seen as new to the host country. Decisions required about the introduction of a new product include; decision about which product to introduce in which country. Decision about timing and sequence of introduction which product to whether to introduce it us it is marketed in the country (in the standardize form or to adapt it to the peculiar requirement of the hole country)

A country can produce a new product for a foreign market either internationally or by acquisition from another company a defensive or as an offensive measure. The rationale for a new product introduction can therefore take three shapes;

To serve a segment hitherto ignored

To satisfy an unfulfilled need and

To adapt a domestic product for better product/market catch.

b) New product development process involves the six steps required for a new product at the international level. These are:

- Idea generation

- Idea screening

- Evaluation

- Proper production market testing and

- Market entry (commercialization)

QUESTION NO 2. BUS 419 2005/2006 SESSION

Clearly explain the concept of world-class organizations. Enumerate five pillars that form their basis.

SOLUTION TO QUESTION 2. BUS 419 2005/2006 SESION

WORLD-CLASS ORGANIZATION

Today, the very best MNCs are going beyond even the learning organization and have become what can be called “World-class organization” (WCOs)

World-class organizations (WCOs) are enterprises that are able to complete with anybody, anywhere, anytime. In most cases. WCOs have operation throughout the globe. WCOs may focus heavily on only one geographic locale and have only limited worldwide operations; examples here include the Kitz-Carllon Hotel chain. Wainwright industries and Wal-Mark. In either case, WCOs are able to compete effectively against all comers, whether foreign or domestic. To become a WCOs an organization must excel in a number of dimensions that in both an additive and synergistic way create a new level of competitive excellence that goes beyond the total quality and learning organizations.

SOME MAJOR PILLARS FORMING THE BASIS OF WCOs includes:

1. A customer based-focus

2. Continuous

3.Fuide, flexible or “virtual organizations”

4. Creative human resources

5. Egalitarian climate and

6. Technological support

The details of each of these characteristics of the world-class organization will be discussed as follows:

1. CUSTOMER-BASESD FOCUS

WCOs are customer-driven. They have identified their internal and external custo0mers and have determined how to serve them effectively. In doing so, WCOs tends to have flat structures. So everyone can be closer to the customer. A good example is Sony’s Walkman. The buyers were impressed not only with the innovativeness of the product but also with the CD version, and how much value they were receiving.

2. CONTINUOUS IMPROVEMENT

A second distinctive characteristic of WCOs is their commitment to continuous improvement (Cl). In contrast to their competitors, WCOs can improve faster, more effectively, and efficiently. A good example is ford motor, which found that it took weeks to process vendor receipts because so many people had to approve the payment. By carefully studying the process, Ford was able to reduce sharply the of individuals who needed to sign off on payments and cut the processing time by 90 percent.

3. USE OF FLEXIBLE OR VITAL ORGANIZATIONS

Another characteristic of WCOs is the flexible or virtual organizations. A virtual organizations is one that is able to conduct business as it were a very large enterprise with major facilities while in fact it is much smaller, made of core business competencies with rest outsourced or partnered . How is this possible? One major way taken into international arena is global sourcing.

Global sourcing is the worldwide suppliers, regardless of where they are located geographically, who are best able to provide the needed output. For example, Japanese automakers today rely increasingly on U.S. suppliers for their cars. Similarly, U.S. laptop computer firm rely on Japanese source to provide screen technology. Wherever possible, However, MNCs prefers home based suppliers because of the benefit this provides them in maintaining their worldwide competitive advantage.

4. CREATIVE HUMAN RESOURCES MANAGEMENT

Human resources generally are given lip service to be the most important asset for any organization. Yet there growing research evidence that human resources and how they are managed do make the difference.

World-class organizations such as southwest Airlines. Rubbermaid, ABB and Gallup, Inc. Do recognize the importance of their people. The relative value of human resources is becoming increasingly important as knowledge-based organizations are replacing traditional asset-based MNCs. WCOs know they must compete based on what their resources are cable of doing rather than on more physical assets, such as buildings, machinery, and equipment. WCOs have state of the art, creative approaches to managing their human resources, and they effectively, stimulate and have a supportive climate for employee creativity. More specifically, their human resource management (HRM) programmes are design to help their people share ownership of problems and solutions, achieve a strong commitment and involvement by top management, communicate consistent goals and objectives to all levels and function in the organization, and help develop an effective use of recognition and reward programmes.

5. EGALITARIAN CLIMATE

WCOs create an egalitarian climate in which all stakeholders-employees, customers, owners, suppliers and the community are treated with dignity and respect.

Another sign of an egalitarian approach is the way which WCOs treat their suppliers. In most the past companies would negotiate with vendors and put one against the other to get the lowest possible price.

6. TECHNOLOGICAL SUPPORT

Most of the creative, innovative and effective approaches of WCOs are supported by advanced, cutting-edge technology support. Examples of such technology include computer aided design and computer aided manufacturing (CAD/CAM). Telecommunications networks, experts or “smart” systems, distributed information systems, multimedia systems and executive or management information systems. One good example is found in the retailing industry, where competition is fierce and profit margins are typically low. Thanks to IT, retailers can tell instantly what they are selling in each of their hundreds of stores, how much money they are making on each sale and increasingly, who their customers are. Additionally, an effective IT system can help a company to minimize its inventory but still reduce the likelihood of stock outs.

QUESTION NO 3. BUS 419 2005/2006 SESSION

International business is guided by laws. Identify four foundations on which such laws are based and explain four principals that guide the conduct of the laws

SOLUTION TO QUESTION 3.419 2005/2006 SESSION

One reason that today’s international environment is so confusing and challenging for MNCs is because there many rules and regulations. There four foundations on which such laws are based around the world.

1. Islamic law: This is a law derived from interpretation of the Qur’an and the teachings of the prophet Mohammed, it is found in most Islamic countries in the Middle East and central Asia.

2. Socialist law: This law comes from the Marxist socialist system and continuous to influence former soviet union, as well as present day china, Vietnam, north Korea and Cuba.

3. Common law: This comes from English law, and it is the foundation of the legal system in the United States, Canada, England, Australia, New Zealand, and others.

4. Civil or Coded law: This law is derived from Roman law and is found in the non Islamic and non socialist countries such as France, some countries in Latin America, and even Louisiana in the United States.

BASIC PRINCIPLES THAT GUIDES INTERNATIONAL LAW

1. Sovereignty and Sovereign immunity: The principle of sovereignty holds that governments have the right to rule themselves as they see fit. In turn, this implies that one county’s court system cannot be used to rectify injustices or impose penalties on another unless that country’s agrees. While U.S laws requires equality in the work place for all employees, U.S. citizens who take a job in Japan cannot sue their Japanese employer under the provision of U.S. for failure to provide equal opportunity for them.

2. International Jurisdiction: The first is the nationality principle, which holds that every country has jurisdiction (authority or power) over its citizens no matter where they are located. THEREFORE A U.S. manager who violates American foreign corrupt practices Act while travelling abroad can be found guilty in the United States. The second is the territoriality principle which holds that every nation has the right of jurisdiction within its legal territory. Therefore a German firm that sells a defective product in England can be sued under English law even though the company is headquartered outside of England. The third is the protective principle, which holds that every country holds jurisdiction.

3. Doctrine of comity: The doctrine of comity holds that there must be mutual respect for the laws, institutions and government of other countries in the matter of jurisdiction over their own citizens.

4. Act of state doctrine: Under the act of the state doctrine, all acts of other governments are considered to be valid by U.S courts, even if such acts are inappropriate in the United States.

5. Treatment and Rights of Aliens: Countries have the legal right to refuse admission of foreign citizens and to impose special restrictions on their conduct, right of travel, where they can stay, and what business they may conduct. For example the united states have the right to limit the travel of Iranian or Chinese scientists coming into the U.S. to attend a scientific convention and can insist they remain 5 miles of the hotel.

6. Forum for Hearing and Setting Disputes: This is a principle of U.S. justice as it applies to international law. At their discretion, U.S. courts can dismiss cases brought before them by foreigners however; they are bound to examine issues such as where the plaintiffs are located, where the evidence must be gathered, and where property to be used in restitution is located.

QUESTION NO 4.BUS 419 2005/2006 SESSION

Product design is a strategy that requires sensitive management decisions. Identify the design strategies and explain five criteria for the choice of each particular strategy.

SOLUTION TO QUESTION 4.BUS 419 2005/2006 SESSION

PRODUCT DESIGN STRATEGY

An important, question that multinational markets need to answer is whether the product approach will be adequate in foreign markets. In other world; a decision must be made about which is more appropriate, of two product design strategies. Standardization or customization means adaptation that is making appropriate changes in a product to march local perspective on the one hand; environmental differences between nations abroad are great. On the other hand, there are potential gains to consider in product standardization. The criteria for the choice of a particular strategy are discussed below:

1. Nature of Product

More standardization is feasible in the case of industrial goods than consumer goods. Among customer goods. Non durables require greater customization than durable, because non durable consumer goods appeal to tastes. Habits and customs. These traits are unique to each country, therefore adaptation becomes significant.

2. Market Development

If a product ‘s foreign market is in a different stage of market development than its local market, appropriate changes in the product design become desirable in order to make an adequate product/market match.

3. Cost/Benefit Relationship

Product adaptation to match local conditions involves costs, these costs may relate to research development (R & D). Physical alteration of the product’s design, style, features, changes in packaging brand name, performance guarantee and the like. The cost/benefit analysis is in terms of what it would cost to customize or standardized and what benefits may be expected in the form of market growth and profitability that would result.

4. Legal Requirements

Different countries have different laws about product standards, patent laws, tariffs and taxes. These laws may require product adaptation.

5. Competition

Customization to gain an advantage over the rivals by providing a product that ultimately matches local conditions

6. Support System

The support system refers to institutions and functions that are necessary to create develop and demand service. These include retailers, wholesalers, sales agent, warehousing, transportation, creditors and media. For example it will be difficult to market frozen foods in a country where retailers do not have facilities for freezing.

7. Physical Environment

This refers to the physical condition of a country such as climate, topography and resources. For example such products as air conditioners in hot country require additional features for satisfactory performance.

8. Market Conditions

Factors such as cultural differences, economic prosperity and customer perceptions in the foreign country would influence the decision to adapt a product.

QUESTION NO 5.BUS 419 2005/2006 SESSION

Clearly explain the various regional developments around the world that had help to fuel the buying and selling activities in the global market.

SOLUTION TO QUESTION 5.BUS 419 2005/2006 SESSION

INCREASING INTERNATIONALIZATION

International business is a new phenomenon: however, the volume of international trade has increased dramatically over the last decade. A number of developments in regions around the world have helped to fuel this activity. Amongst them are:

REGIONAL DEVELOPMENTS IMPACTS INTERNATIONALIZATION

Several important developments have had a direct impact on internationalization and should be noted. Some of the most important have been:

1. THE United States, Canada and Mexico make up the North American free Trade Agreement (NAFTA), which in essence has removed all barriers to trade between these countries and created a huge North American market.

2. The European Union (EU) is now well on its way to create a unified market that many have been described as the united states of Europe. This group consists of 15 nations including Austria, Belgium, Denmark, Finland, France, Germany, Great Britain, Greece, Holland, Ireland, Italy, Luxembourg, Portugal, Spain and Sweden. Not only have most trade barriers between the members been removed, but the group has adopted a unified currency called the “euro”.

3. The most recent changes of the General Agreement on Tariffs and Trade (GATS) are stimulating increased world trade. Under the new agreement, lands will be reduced world wide by 38 percent, and in some cases eliminated completely. The percentage of products entering United States duty free will rise from the current 10 percent to 40 percent and for industrialized countries worldwide the percentage will rise from 20 to 44.

Under the new agreement, GATT itself has been replaced by the world trade organization (WTO), which came into existence on January 1. 1995. The WTO has more power to enforce rulings on trade disputes and create a more efficient system for monitoring trade policies.

4. There also is recent economic progress among less developed nations. A good example is India, which for years has had a love-hate relationship in attracting foreign capital.

5. In Africa a new economic order has emerged the African union with objectives similar to the ones discussed above plans are underway to eliminate all trading barriers and evolve a unified currency.

6. Central and Eastern Europe, Russia and other republics of the former Soviet Union currently are still trying to make the other transition to market economics. For example, after the fall of the Berlin wall in 1989, coca-cola quickly began to severe its relations with most of the state-run bottling companies in the former communist bloc countries.

QUESTION NO 6. BUS 419 2005/2006 SESSION

Multinational Corporations are blessings in disguise particularly to the underdeveloped countries. Evaluate their negative and positive contributions and take a position.

SOLUTION TO QUESTION 6. BUS 419 2005/2006 SESSION

MULTINATIONAL CORPORATIONS AND THEIR IMPACT

It can be said that no existing nation can survive in a total isolation, be it a developed or underdeveloped nation. No country can as such be totally self sufficient without having to relate and trade with other countries or nations. A country cannot produce all the goods and services that she require and as such has to trade with other countries to be able to obtain those goods that cannot be produce in the country but are required by the country.

In the light of the above it should be argued that there is need for a certain degree of involvement of foreign or multinational organization which brings in fresh capital to boost the size and shape of the prevailing economy through their various economic activities. The multinational corporation are seen as blessings by their host countries but in the actual sense they hardly catalyst the economic growth of the host countries.

BENEFITS OF MULTINATIONAL CORPORATIONS

Multinational corporations usually brings about benefits and cost to her country or countries. Multinational corporation invest usually provide desirable risk capital for host country development sectors. Multinational also serves as instruments of beneficial technology transfer through the infrastructural and social overhead items. Multinational corporation organizations and marketing expertise, knowledge transfer and job training.

Multinational Corporation also tends to spur a greater quest for efficiency in many of their indigenous counterparts.

CRITICISM OF MULTINATIONAL CORPORATIONS

However, over the years there exist an increasing cry by both government and its citizenry against the actions and practices of many of these multinational corporations, there exist many which led to very eases of antagonization, expropriation and outright nationalization.

One good example was, antagonization decree of 1972 (Nigeria) which transferred ownership of multinational corporations to the Nigeria citizens.

a. They constraint national development by using inappropriate technology and expatriate managers.

b. They reduce the efficiency of domestics or local enterprises and stifle their growth and development.

c. They worsen the balance of payment by importation of capital equipment intermediate good, foreign personnel and by the heavy repatriation of profit.

d. They have exerted influence on political decision making at all levels of government in the host nation

e. They do not make substantial contributions to tax revenue as most multinational corporation enjoys tax holidays as well as liberal tax concessions

f. They also use their enormous power to influence government policy. They extract undue concessions in the form of extended protection tax holidays, depreciation allowances and so on.

In general the multinational corporations have been described as insensitive instruments of imperialism, exploitation and also agents of the foreign policies of advanced nations.

QUESTION NO 7. BUS 419 2005/2006 SESSION

(a) State and explain the type of risk exposure which international companies face in doing business overseas.

(b) Suggest any five ways of minimizing these risks.

SOLUTION TO QUESTION 7. BUS 419 2005/2006 SESSION

Risk in International Business

Introduction

From a U.S. or west European perspective investment in the second and third worlds looks very much riskier than investment at home. There is a lot to worry about: The increased internationalization of investment in the past decade has enormously raised the exposure of investors to risks associated with events in many different countries.

Joint ventures with local firms

When manufacturing firms take local partners with an eye to reducing risk, the risk they generally have in mind is political risk.

Why Study International Business Risk?

There are at least two broad reasons why the country in which an investment is made may be of interest to an investor.

First, classifying investment by country is useful in identifying a group of investments that are likely to have similar characteristic because they are subject to common sources of uncertainly.

A Second reason for classifying investments by the recipient country derives from the existence of the nation state. All investments within a single country share the characteristic of falling within the same government’s jurisdiction.

Type of International Business Risk

1. Economic Risk

In focusing on the economic aspects of country risk we treat political and cultural factors as given. In particular, we assume that recipient countries have government pursue a consistent set of objectives and that the populace of these countries has an observable and stable attitude to foreigners, private property and contract.

2. The Resources at Stake

At the most elementary key resources at stake are the very lives of the corporations and their personnel.

3. Social and Cultural Risk

The first problem of explaining the incidence of revolution. (This is unsurprising since, on the analysis offered here, the completed trajectory of a revolution is the quintessence of actualized social and cultural risks). The second is the less well-defined problem of identifying just what in social, cultural and political terms makes capitalist production and the patterns of exchange it generates viable at all.

4. Political Risk

‘’Bet only on winners, and try to get your bets in after the horse is past the post.’’ this is sound advice for those who like to win. The only problem is how to follow the advice.

Large firms and even private individuals face political risk in their own country by the mere fact that they exist in a political environment.

Individuals and corporations who ignore economic planning and prediction may end up poorer if luck fails to smile. But those who choose to ignore the portents of change in the political environment may not survive at all, or may find them fortunate to be in exile.

Internal political risks are those run by an installation or individual to the unforeseen actions or influence of the local political powers. They may be associated with changes in the policy or parties caused by elections, public pressure, coup d’état, revolution or civil war.

Measures to Reduced international Business Risk

1. Joint ventures as Risk Reduces

Once a firm has determined that an international investment may be desirable as a means of reducing risk, it is still faced at times with possibility of going it alone or investing in partnership with others. The choice among the various alternatives is commonly affected by questions of risk. But once again, the risks to be avoided are of various kinds.

2. Consortia of foreigners

Firms in the raw material industries typically place a high premium on reducing the risks of the unforeseen, such as wars, strikes and earthquakes. But in operational scale economies are large; such diversification can especially on the part of the smaller firms in the oligopoly. The solution for such firm to multiply their joining others in a number of consortia. That response has had the effect of producing various consortia of firms engage in the common exploitation of a raw material in a country that is foreign to all of them.

3. The Exchange of Threats

Researchers also claim to see risk reducing objectives in other seemingly imitative investments of the multinational enterprises. It has repeatedly been observed, for instance, that U.S. based industries that were generating the highest rate of foreign direct investments in Europe were much the same as the European industries that more or less simultaneously were investing in the United States. One explanation for this behaviour is provided by so called exchange of threat hypothesis. Threatened by the establishment of a foreign owned subsidiary, in their home market, the response of the leading firms in that market is to set up subsidiaries, in the invader’s home market. This cross investment conveys a warning to the invading firm that any excessively energetic efforts to compete in the foreign market may, be countered by similar efforts in the market of the invader.

4. Direct Investment as a Response to Risk

The drive for internalization, it is generally agreed, stems from the firm’s view that there is some marked imperfection in the market for the product or service concerned a view that stimulates the firm to create its own internal market and to accept the narrowing of choice that is commonly involved in that decision. Two types of industry in which such internationalization is particularly common are the exploitation and processing of oil and minerals and the development and application of advanced technologies. Not surprisingly, therefore this industry proves to be heavily over represented among foreign direct investors.

QUESTION NO 8. BUS 419 2005/2006 SESSION

The international marketing environment has undergone significant changes since 1945, creating both new opportunities and problems.

i. States these changes

ii. Briefly discuss the following international market environments:

(a) Economic environment

(b) Political Legal environment

SOLUTION TO QUESTION 8i BUS 419 2007/2008 SESSION

CHANGES IN POLITICAL, LEGAL AND ECONOMIC FORCES

In recent years two large and related shifts in political and economic forces have occurred globally. One the shift away from totalitarian dictatorships and toward more democratic regimes has been most dramatic in Eastern Europe and the former Soviet Union, where totalitarian communist regimes collapse during the late 1980s and early 1990s. The other shift toward representation democracy has occurred from Latin America to Africa. For the most part, the movement toward democracy has been be precipitated by the failure of totalitarian regimes with command or mixed economics to improve the well being of their citizens.

SOLUTION TO QUESTION 8ii. BUS 419 2007/2008 SESSION

ECONOMIC ENVIRONMENT

Economic forces are caused by changing nature of countries economic systems. Around the globe, economic systems range from free market economics to command economics and managers must learn how different economic systems work in order to understand the opportunity and threats associated with them.

In a free market economy, the production of goods and services is left in the hands of private (as opposed to government) enterprise. The goods and services that are produced and quantities that are produced are not specified by a central authority. Rallied production is determined by the interaction of the forces of supply and demand. If demand or a product exceeds supply, the price of the product will rise, prompting managers and organization to produce more. If supply exceeds demand, prices will fall causing managers and organizations to produce less.

In a command economy, the goods and services that a country produces, the quantity in which they are produced, and the prices in which they are sold are all planned by the government. In a pure command economy, all business is government owned and private enterprises are forbidden. As recently as 1989-1991, the communist of Eastern Europe and the Soviet Union had command economics as did other communist countries such as china and Vietnam.

Between free markets economics, on the one hand command economies, on the other are mixed economies. In a mixed economy, certain sectors are characterized by significant government ownership and government planning. Mixed economics are most commonly found in the democratic countries of Western Europe, but they are disappearing as these countries shift toward the free market model. For example in Britain in the early 1980s the government owned a majority stake in many important industries including airlines, healthcare, steel and telecommunications.

The manager of a global organization generally prefers a free market system, for two reasons; first because much of the economy is in private hands, there tend to be a few restrictions on organizations that decide to invest in countries with free market economies. Second free market economic growth than command or mixed economics, so their citizens tends to have higher per capital incomes and more spending power.

SOLUTION TO QUESTION iib. BUS 419 2007/2008 SESSION

POLITICAL AND LEGAL ENVIRONMENT

Global political and legal forces result from the diverse and changing nature of various countries political and legal systems. The global range of political systems includes everything from representative democracies to totalitarian regimes, and in order to manage global organizations effectively, managers must understand how these different political systems work. These includes

1. An individual right to freedom of expression, opinion and organization

2. Free media

3. Regular elections in which all the eligible citizens are allowed to vote.

QUESTION NO 10 BUS 419 2007/2008 SESSION

Explain the following with illustrations where appropriate

a. Terms of trade

b. Balance of payment

c. Theory of comparative cost

SOLUTION TO QUESTION 10A. BUS 419 2007/2008 SESSION

The terms of trade

By terms of trade, we mean the rate at which one country’s product exchange for product of another country. This can be expressed mathematically as follows:

Terms of Trade= Index of export prices

Index of import prices

Example, by the term of trade we mean the rate at which one unit of Sierra Leone’s rice will exchange for one unit of Nigeria’s cocoa. These depend on the price of commodities entering international trade. The terms of trade are said to be favourable to a country, when the price of its exports are higher relatively to the price of its imports.

SOLUTION TO QUESTION 10B. BUS 419 2001/2002 SESSION

The Balance of payments

International trade provides obligations to make payments to other countries and to receive payments from them. The balances of payments show the relationship between a country’s payments to other countries and its receipts from them. Balance of payment is, therefore, a statement of income and expenditure of a country on international account.

The balance of payment can be divided into three groups

i. The visible balance of trade

ii. The invisible items

iii. Capital movement

i. The visible balance of trade

The chief payments and receipts are for goods imports and exports. Items in the balance of payment which relate to goods are known as visible items and the relation between imports and exports of these goods is known as the ‘’balance of trade’’

Invisible Items

Apart from imports and exports of goods many other payments and receipts enter into a country’s balance of payments. These are called invisible items because they are largely in the forms of services provided by one country to another. Broadly, these services include:

i. Shipping by Sea and by Air: Payments have to be made to shipping and air craft companies for the carriage of goods and passengers from the country to another. The most important merchant fleets in the world are those of the Americans, Germans, British and Japanese.

ii. Insurance: Shipping and air lifting involve a considerable amount of risk, hence the need for insurance. This service, when provided by foreign banks has to be paid for.

iii. Interest, Profits and Dividends: Foreign investment is of considerable importance. However the existence of foreign investment in a country means that some money, in the form of interest on loans, profits and dividends will have to flow out. These are all invisible items. Although government may reduce the amount of out-flow in the form of profits and dividends, there will still be need to pay for the companies whose shares have been taken up.

iv. Tourism: Some countries attract tourist from other countries. When a foreigner visits a country, they bring along foreign currency. Tourism has become an important source of foreign exchange earnings for some countries such as Kenya. Israel is a world tourist centre for the Christians, while Saudi Arabia is a tourist centre for the Muslims.

v. Government Expenditure Abroad: Most governments spend money abroad through their embassies or high commissions. They remit money to their students on scholarships. Most governments also make contributions to international organizations such as AU, ECOWAS, ILO. Also these transactions are made in foreign exchange and the form parts of the invisible items. Other invisible items include: These include a large variety of remittance such as home remittance of 25 percent of the salaries of expatriates, remittance to relatives and children studying abroad, renting or hiring of foreign films, aircrafts, ships, etc. All these have to be paid for in foreign currencies. Also include in the invisible items are consultancy services and official transfers.

Capital Movement

The visible and invisible items of balance of payments show the current income and expenditure of one country with the rest of the world. The balance of payment is also affected by the capital movement. The capital account will include, among other things, investments undertaken in other countries. Since the current account will show a credit balance or a debit balance, the capital account will show the balance was financed. As a matter of book keeping, therefore, the capital account must show a balance equal to that of the current account and the capital account together, must always equal to one another. This is so because transaction must be paid for by somebody.

SOLUTION TO QUESTION 10C. BUS 419 2007/2008 SESSION

The Theory of comparative costs

The Classical Theory of the International Trade is known as the Theory of Comparative Costs, was first formulated by Ricardo and later improved by J. Stuart Mill, Cairnes, and Bastable. Its best exposition is to be found in the works of taussing and haberler.

COPARATIVE COSTS THEORY

The principle of comparative costs is based on the differences in production costs of similar commodities in different countries. Production costs differ in countries because of geographical division of labour and specialization in production. Due to differences in climate, natural resources, geographical situation and efficiency of labour a country can produce one commodity at lower cost than the other. In this way country specialises in production of that commodity in which it comparative cost of production is the least. Therefore when a country enter into trade3 with some other country it will export those commodities which it comparative production costs are least and will import those commodities which its comparative production are high.

Assumption of the theory

The Ricardian doctrine of comparative advantage is based on the following assumptions:

1. They are only two countries say A and B

2. They produce the same to commodities X and Y

3. Tastes are similar in both countries

4. Labour is the only factor of production

5. All labour units are homogeneous

6. The supply of labour is unchanged

7. Prices of the two commodities are determined by labour cost i.e the number of labour units employed to produce each.

8. Commodities are produced under the law of constant costs or returns

9. Trade between the two countries takes place on the basis on the basis of barter system.

10. Technological knowledge is unchanged

11. Factors of production are perfectly mobile within each country but are perfectly immobile between the two countries

12. There is free trade between the two countries, there being no trade barriers or restrictions in the movement of commodities

13. No transport costs are involved in carrying trade between the two countries

14. All factors of production are fully employed in both the countries

15. The international market is perfect so that the exchange ratio for the two commodities is the same.

Cost Differences

Given these assumptions, the theory of comparative costs is explained by taking three types of differences in costs: absolute equal and comparative.

1. Absolute differences in costs. There may be absolute differences in costs when one country produces a commodity at an absolute lower cost of production than the other.

The absolute differences in costs are illustrated in the Table below

Country	Commodity-X	Commodity-Y
A	10	5
B	5	10

The table reveals that country A can produce 10X or 5Y with one unit of labour and country B can produce 5X or 10Y with one unit of labour.

In this case country A has an absolute advantage in the production of X (for 10X is greater than 5X), and country B has an absolute advantage in the production of Y (for 10Y is greater than 5Y).

2. Equal Differences in costs. Equal differences in cost arise when two commodities are produced in both countries at the same cost difference. Suppose country A can produce 10X or 5Y and country B can produce 8X or 4Y.

In this case, with one unit of labour country A can produce either 10X or 5Y and the cost ratio between X and Y is 2:1. In country B, one unit of labour can produce either 8X or 4 and the cost ratio between the two commodities are 2:1.

When the cost differences are equal, no country stands to gain from trade. Hence international trade is not possible.

3. Comparative Differences in Costs. Comparative differences in cost occur when one country has an absolute advantage in the production of both commodities, but a comparative advantage in the production of one commodity than in the other.

QUESTION11. BUS 419 2007/2008 SESSION

A) Briefly explain the history of international banking.

B) Briefly trace the origin of Eurocurrency market, highlighting its major characteristics, and main reasons for its expansion.

SOLUTION TO QUESTION11A. BUS 419 2007/20008 SESSION

Banking is generally known to have been started by the Italian goldsmiths who settled down into business in London in about the seventeenth century. They initially began by accepting deposit of gold coins and other valuable from their customers for safe keeping. As the volume of this business grew they had to build large strong rooms where these customers valuable items were kept until demands were made on them by the depositors. They later found that not all that were deposited were need at a particular time and so they began giving out part of the money deposited to interested borrowers by way of loans. They equally charge some amount of interest. The acceptance of deposits and granting of loans are basic banking functions all over the world today.

It is interesting to note that the forerunner of the modern banking started and performed virtually all the same functions of banking.

SOLUTION TO QUESTION11B. BUS 419 2007/2008 SESSION

The Euro-Dollar Market (Eurocurrency)

1. MEANING

The Euro-dollar market otherwise called Eurocurrency is the largest market in the international monetary system. It has been playing a central role in international finance.

Euro-dollar is not a different currency from the US dollar. But it is the American dollar which stands deposited with banks, known as euro banks (European banks), outside the United States. Quite often, they are deposited with a bank in London, or in Paris, Frankfurt, Amsterdam or Zurich.

2. ORIGIN AND GROWTH

The origin of the Euro-dollar market can be traced back to the 1920s when the US dollars were deposited in the European banks which converted them into their local currencies for lending purposes. But the real growth of the euro-dollar market began after the Second World War. The following factors led to its growth

1. Flow of US Aid: The United States emerged as the most powerful nation in the post-war period which spent huge sums of money on the rehabilitation of Europe both in terms of economic and military aid. This lead to the transfer of a large number of dollars in euro banks

2. Cold War. The cold war which started in the 1950s led the Soviet Union and the east European government to transfer their dollar deposits from America to euro banks for fear that might be blocked by the American government.

3. Decline in the Importance of sterling. In the post war period Britain emerged as a debtor country. Consequently the British sterling which had dominated the international financial market in the pre-war era gave place to the dollar in the post-war period. The importance of sterling further fell when the British government placed severe restrictions on the grant of sterling to, central banks outside the sterling area under the British exchange control act in the early post-war period.

4. Other US Measures. There were some other measures which hampered the capacity of US banks to complete for international business including curbs on the release of taxes on profits earned by foreigners in the United States, the introduction of the interest Equalization Tax in 1964, controls over the US direct investment abroad and tight monetary policy to control inflationary pressures. These led to heavy borrowing by US banks from the Euro-dollar market to meet the demand for dollars in the US.

5. Innovative Banking. Because of special circumstances that were present in the 1950sthere came into being a banking system distinct fro0m but supplementary to the banking system of Europe. Like any other banking system, its element consisted of reserves, deposits and loans, all in US dollars and recorded in euro banks. Consequently, the euro-dollar market has grown rapidly in which the market is situated.

FEATURES OF EURO-DOLLAR MARKET

The euro-dollar market has the following features

1. International Market. The euro-dollar market is an international market which accepts deposits in dollars from throughout the world and gives credits in dollars

2. Independent Market. It is a free and independent market which does not function under the control of any monetary authority

3. Wholesale Market. It is a wholesale market in which US dollars are bought and sold usually above $ 1 million.

4. Competitive Market. It is a highly competitive market in which the supply and demand for dollars depends on interest rate changes of Euro banks.

5. Short-Term Market. It is a short term money market in which dollar deposits are usually accepted for a period ranging from a few days to a year and interest is paid on them.

6. Inter-Bank Market. It is an inter-bank market in which the euro banks borrow and lend dollars and other euro-currencies from each other.

QUESTION 12. BUS 419 2007/2008 SESSION

State the main theories of international business and assess the relevance of one of these theories for application in Nigeria.

SOLUTION TO QUESTION 12 BUS 419 2007/2008 SESSION

Contemporary theories of foreign direct investment

1. Monopolistic Advantage Theory

The monopolistic advantage theory maintains firms make foreign direct investment in oligopolistic industries possessing technical and other advantages over indigenous firms.

The modern monopolistic advantage theory stems from Stephen Hymer’s dissertation in the 1960s in which he demonstrated THAT FOREIGN DIRECT INVESTMENT (FDI) occurred largely in oligopolistic industries rather than in industries under near perfect competition. This means that the firms in these industries must possess advantage not available to local firms. Hymer reasoned that the advantages must be economies of scale, superior technology, or superior knowledge in marketing management or finance, foreign direct investment took place because of these product and factor market imperfections.

2. Portfolio Theory. One other financial based theory (portfolio theory) suggests that international operations allow for a diversification of risk and therefore tend to maximize the return on investment.

3. Follow the leader theory: Another theory was developed by knicker Bocker, who noted that when one firm especially the leader in an oligopolistic industry entered a market other firms in the industry followed. The follow the leader theory is considered defensive because competitors are investing to avoid losing the markets served by exports when the initial investor begins local production.

4. The International Theory: Is an extension of the market imperfection theory. The firm has superior knowledge, but it may obtain a higher price for that knowledge by using it than by selling it in the open market. By investing in a foreign subsidiary rather than licensing, the company is also able to send the knowledge across borders while maintaining it within the firm, where it presumably yields a better return on the investment made to produce it.

5. International Product Life Cycle (IPLC): We have already examined this theory to help explain international trade flows, but as we said there is close relationship between international trade and international investment. As you saw, the IPLC concept also explains that foreign direct investment is a natural stage in the life of a product. To avoid losing a market that it services by exporting, a company is forced to invest in overseas production facilities when other companies begin to offer similar products.