CCP Foundation Level

Business Environment flashcards

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Which body regulates each part of the Kenyan financial system?

Banks and mortgage finance companies: the Central Bank of Kenya (CBK), which also runs monetary policy and issues the currency. Deposit-taking SACCOs: the SACCO Societies Regulatory Authority (SASRA). Insurance: the Insurance Regulatory Authority (IRA). Capital markets: the Capital Markets Authority (CMA). Pension funds: the Retirement Benefits Authority (RBA).

How do a sole proprietorship, a private limited company and a public limited company differ?

Sole proprietorship: one person owns and runs the business, with unlimited personal liability for its debts. Private limited company: liability limited to the amount invested; its shares cannot be offered to the public. Public limited company: liability also limited, but its shares may be offered to the public and, if listed, traded on the Nairobi Securities Exchange.

What does each letter of PESTEL stand for?

Political: government stability, policy direction and regulation. Economic: growth, inflation, interest and exchange rates. Social: demographic and cultural factors shaping demand and labour supply. Technological: the pace of innovation and its effect on products, processes and competition. Environmental: climate, sustainability expectations and environmental regulation. Legal: the laws and regulatory requirements the business must comply with.

What are Porter's five forces, and how does each affect prices and costs?

Rivalry among existing competitors: pushes prices down and costs up. Threat of new entrants: easy entry constrains pricing power. Threat of substitutes: limits how far prices can rise before customers switch. Bargaining power of suppliers: can raise input costs or restrict supply terms. Bargaining power of buyers: can force lower prices or better terms, squeezing margins.

What are the four elements of the marketing mix?

Product: what is offered to satisfy the need, its features, quality and design. Price: what the customer pays, and how it is set. Place: how and where the product reaches the customer, the distribution channel. Promotion: how the business communicates the offer to the target market.

At what output does a firm maximise profit, and why?

Where marginal revenue (MR) equals marginal cost (MC). Where MR > MC, one more unit adds to profit, so output should rise. Where MR < MC, one more unit reduces profit, so output should fall. Example: MR = 100 - 4Q and MC = 10 + 2Q give 90 = 6Q, so Q = 15 units.

What is the difference between cost-push and demand-pull inflation?

Cost-push: rising production costs (wages, raw materials, energy) push businesses to raise prices to protect their margins. For example, a sharp rise in oil prices. Demand-pull: aggregate demand exceeds aggregate supply, so buyers bid prices up as they compete for limited output. For example, a consumer spending boom.

What is the difference between fiscal and monetary policy, and how does each reach a business?

Fiscal policy: government decisions on taxation and spending, affecting business costs through tax and demand through government spending. Monetary policy: central bank decisions on interest rates and money supply, affecting the cost and availability of credit across the economy. Expansionary policy supports business activity; contractionary policy does the reverse.

What is the difference between absolute and comparative advantage?

Absolute advantage (Adam Smith): a country produces a good using fewer resources than another. Comparative advantage (David Ricardo): a country produces a good at a lower opportunity cost. Even if one country is more efficient at everything, both gain when each specialises in its comparative advantage and they trade.

Why should a credit manager treat longer credit terms offered as a sales tool as a price cut?

Offering ninety days rather than thirty gives the customer the use of the money for two extra months at the supplier's expense: a reduction in the effective price that does not appear in the price list. The test is whether the extra volume covers both the funding cost and the additional default risk of the longer exposure.

What is the business operating environment?