All firms forecast demand, but it would be difficult to find any two firms that forecast demand in exactly the same way. Over the last few decades, many different forecasting techniques have been developed in a number of different application areas, including engineering and economics. Many such procedures have been applied to the practical problem of forecasting demand in a business system, with varying degrees of success. Most commercial software packages that support demand forecasting in a business system include dozens of different forecasting algorithms that the analyst can use to generate alternative demand forecasts. While scores of different forecasting techniques exist, almost any forecasting procedure can be broadly classified into one of the following four basic categories based on the fundamental approach towards the forecasting problem that is employed by the technique. Judgmental Approaches. The essence of the judgmental approach is to address the forecasting issue by assuming that Continue reading
Managerial Economics
Managerial Economics generally refers to the integration of economic theory with business practice. It deals with the use of economic concepts and principles of business decision making. Managerial Economics is thus constituted of that part of economic knowledge or economic theories which is used as a tool of analyzing business problems for rational business decisions. Managerial economics can be viewed by most modern economists as a practical application of economics theory in using effectively the firms scarce resources.
Demand Forecasting in Managerial Economics
One of the crucial aspects in which managerial economics differs from pure economic theory lies in the treatment of risk and uncertainty. Traditional economic theory assumes a risk-free world of certainty; but the real world business is full of all sorts of risk and uncertainty. A manager cannot, therefore, afford to ignore risk and uncertainty. The element of risk is associated with future which is indefinite and uncertain. To cope with future risk and uncertainty, the manager needs to predict the future event. The likely future event has to be given form and content in terms of projected course of variables, i.e. forecasting. Thus, business forecasting is an essential ingredient of corporate planning. Such forecasting enables the manager to minimize the element of risk and uncertainty. Demand forecasting is a specific type of business forecasting. Concepts of Demand Forecasting The manager can conceptualize the future in definite terms. If he Continue reading
Official Actions to Influence Foreign Exchange Rates
As in some other major industrial nations with floating exchange rate regimes, in the United States there is considerable scope for the play of market forces in determining the dollar exchange rate. But also, as in other countries, U.S. authorities do take steps at times to influence the exchange rate, via policy measures and direct intervention in the foreign exchange market to buy or sell foreign currencies. As noted above, in practice, all foreign exchange market intervention of the U.S. authorities is routinely sterilized–that is, the initial effect on U.S. bank reserves is offset by monetary policy action. No one questions that monetary policy measures can influence the exchange rate by affecting the relative attractiveness of a currency and expectations of its prospects, although it is difficult to find a stable and significant relationship that would yield a predictable, precise response. But the question of the effectiveness of sterilized intervention, Continue reading
Law of Demand – Meaning, Assumptions and Exceptions
Suppose you want to buy mangoes at Rs.100 per dozen you buy 6 dozens. If the price of mangoes increase to 200/- then how much will you buy? Definitely less quantity of goods. What kind of relationship is there between the price and quantity demanded? There is inverse relation. The law of demand explains the functional relationship between price of a commodity and the quantity demanded of the same. It is observed that the price and the demand are inversely related which means that the two move in the opposite direction. An increase in the price leads to a fall in the demand and vice versa. The law of demand states that “Ceteris paribus (other things remaining the same), higher the price, lower the demand and vice versa”. The law is stated primarily in terms of the price and quantity relationship. The quantity demanded is inversely related to its price. Continue reading
Foreign Exchange Management Policy in India
Overview of Indian Foreign Exchange Policy Independence ushered in a complex web of controls for all external transactions through a legislation i.e., Foreign Exchange Regulation Act (FERA), 1947. There were further amendments made to the FERA in 1973 where the regulation was intensified. The policy was designed around the need to conserve Foreign Exchange Reserves for essential imports such as Petroleum goods and food grains. The year 1991 was an important milestone for the Economy. There was a paradigm shift in the Foreign Exchange Policy. It moved from an Import Substitution strategy to Export Promotion with sufficient Foreign Exchange Reserves. The adequacy of the Reserves was determined by the Guidotti Rule, though the actual implementation of the rule was modified to meet our requirements. As a result of measures initiated to liberalize capital inflows, India’s Foreign Exchange Reserves (mainly foreign currency assets) have increased from US$6 billion at end-March 1991 Continue reading
Use of Exchange Controls to Eliminate a Nation’s Balance of Payments (BoP) Deficit
The exchange control refers to a set of restrictions imposed on the international transactions and payments, by the government or the exchange control authority. Exchange control may be partial, confined to only few kinds of transactions or payments, or total covering all kinds of international transactions depending on the requirement of the country. The main features of a full-fledged exchange control system are as follows: The government acquires, through the legislative measures, a complete domination over the foreign exchange transactions. The government monopolizes the purchase and sale of foreign exchange. Law eliminates the sale and purchase of foreign exchange by the resident individuals. Even holding foreign exchange without informing the exchange control authority’s declared illegal. All payments to the foreigners and receipts from them are routed through the exchange control authority or the authorized agents. Foreign exchange payments arc restricted, generally, to the import of essential goods and service such Continue reading