Oligopoly is an imperfectly competitive market form, where there are few sellers and a large number of buyers, and the product may be homogeneous or differentiated. Since there are few sellers, so there arises Conscious Rivalry among the firms. That is, if a firm takes any action or strategy, then it influences the act or strategy of its rival firm. This mutual interdependence leads to strategic interactions between the firms.
When the firm’s strategies on their own without cooperating with its rival firms, or without any explicit or implicit agreement, then this leads to non-collusive oligopoly, producing ‘price wars’ among each other.
Case I: When the conjectural variation is zero, i.e., when a firm changes its price, it considers the price of the rival firm remains unchanged. Here, the firms’ objective is to maximize profit. The profit functions can be written in a duopoly case as,
Π1 = Π1(P1,P2) and Π2 = Π2(P1,P2)
Suppose the first firm assumes P2 as constant and selects P1 in such a manner that its profit maximizes. In this way, we get different combinations of P1 and P2, which gives the price reaction curves of the firms R1 and R2.
If the first seller’s price is P1, then firm two assumes that firm one will maintain P1 price, and so to maximize its profit, he chooses P2. Again, corresponding to P2, the first seller fixes his price level at P1‘, to maximize his profit. In response to this, the second seller fixes his price at P2‘ and thus, we see that with the advent of time, the price level approaches the equilibrium value E at P1* and P2*.
Case II: When conjectural variation is non zero, there arises the problem of price leadership. Naturally, the leader gets some advantage, as it sophisticatedly incorporates its rival’s reaction function and accordingly maximizes his profit. In this process of becoming price leaders, both the firms end up earning lesser profit. Because each of them is stuck to the assumption that other’s behavior is governed by his reaction function, but in fact, neither of the reaction function is obeyed. As a result, both the sellers lose in this non-cooperative strategy, and a price war is inevitable.
The fact that the leader gains and the follower lose has the possibility that both the sellers will aspire to be leaders. If this happens, we get disequilibrium where both the sellers land into much worse positions. Considering the following pay-off matrix, the strategy ‘Leader’ is the dominant strategy for both the sellers, but as a result, they are worse off than the (Follower, Follower) strategy.
1st Sellers’ Strategy
2nd Seller’s Strategy
Leader
Follower
Leader
(2,2)
(10,1)
Follower
(1,10)
(5,5)
This act of price leadership, leading to a price war, ends when one of the firms surrenders and agrees to act as a follower, or a collusive agreement is reached with both the firms.
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This kind of statements often haunts us with several questions like:
How to improve my assignment? How to approach? What to write? Etc.
So, numerous websites or articles will answer your questions. Most of the tips you can find are just some trivial statements that are of no use in real life. Solving any assignment is very time consuming, and Students can use this saved time for exam preparation, extracurricular activities, etc. If a student doesn’t have much time for his/her assignment, then we will provide you with some excellent and feasible tips to solve your Assignment in very less time.
Read the question carefully and gather information.
It is an essential part of questions that are often very tricky and tends to confuse the student. Reading some other theoretical concepts related to your assignment makes your base durable and helps to solve quickly.
2. Check the deadline
Stick posts in your calendar or use any app that can add a “countdown” to your phone. Plan your schedule, and don’t wait for the last moment.
3. Ask For help if you need
Don’t shy to ask your tutor for any doubts or consult any discussion forum. It’s better to clarify it at the start than to re-write in the last few days.
4. Deal the questions smartly.
You don’t need to solve the questions in the given sequence. First, try to solve the easier ones, and in the end, you will gain the confidence to solve the tougher ones.
5. Divide the assignment into manageable chunks
If it’s a considerable assignment, then don’t try to solve the whole assignment at once. First, read all the questions at a glance and then read-only those topics to answer your questions. You can also study a small part and then solve only those questions related to that part and repeat this approach until you answer all the questions. These tactics will help to remember the concepts and channelize them most appropriately.
6. Don’t memorize
It has often been noticed that the students tend to memorize the terms and formulae without adequately understanding the fundamental concepts. Thus, when the time comes for an analytical solution, they are unable to solve the questions. So you should always spend time on one topic first before jumping on to the next one.
7. Don’t beat around the bush.
Teachers always expect to the point answers. If You don’t know something, then it’s useless to make voluminous answers with unnecessary stuff. “To the point,” the answer will help you get good marks and help you solve quicker.
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Effective methods to improve your memory “Memory is the treasury and guardian of all things and is the most powerful weapon.”
So, is it possible to improve your memory? If you’ve ever found yourself forgetting where you left your mobile or blanking out information on necessary tests, you probably wish that your mind was a bit better. Genetics plays a role in memory loss. However, research has shown that diet and lifestyle have a significant impact on memory too. Here are nine scientifically proved and evidence-based tips to increase your memory naturally
Make time for Meditation. Meditation calms down our body and mind and helps us to think precisely. Research suggests meditation may increase grey matter in the brain and improve spatial working memory. If You can’t meditate, then close your eyes and start back-counting from 1000-1.
Focus Your attention Pay attention while studying, and try to avoid distractions. At first, its a bit tough, but through practice, you will be able to acquire it.
Visualize Concepts An experiment shows that if we visually perceive anything, then it remains in our brain for long. So, try to make mnemonics and figures while studying or working.
Take breaks in between and get adequate sleep. The brain is similar to a machine. So, please give it some rest to increase its efficiency. Research has shown that taking a nap after learning something new can help you learn faster and remember better.
Rehearse and relate new information to things that You already know Revision plays a vital role in recalling stuff readily. By establishing relationships between new ideas and previously existing memories, you can dramatically increase the likelihood of remembering the recently learned information.
Eat a balanced diet Your diet plays an essential role in improving your memory. Eat less added sugar, avoid spicy and oily food. Eat green veggies, fruits, and milk as much as possible. Research has shown that almonds nourish the white matter in our brain, and Vitamin D is also an essential nutrient that plays many vital roles in the body. Low levels of vitamin D have been linked to a host of health issues, including a reduction in cognitive function. Consuming a diet rich in anti-inflammatory foods may help improve your memory.
Exercise Exercise brings incredible benefits for your whole body, including your brain. Even moderate exercise for short periods has been shown to improve cognitive performance, including memory, across all age groups. Obesity is a risk factor for cognitive decline. Maintaining a body mass index within the normal range may help you avoid a host of obesity issues, including an imperfect memory.
Train Your brain Exercising your cognitive skills by playing brain games like chess, crosswords, Soduku, etc. is a fun and effective way to boost your memory. Games that challenge your brain may strengthen your mind and may even reduce the risk of dementia.
Avoid smoking and drinking alcohol Alcohol and tobacco have neurotoxic effects on the brain, including reducing memory performance. Occasional moderate drinking isn’t an issue, but binge drinking can damage your hippocampus, a key area of your brain associated with memory.
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The first thing that comes to our mind when we hear about the assignment is that it is a complete waste of time. Writing assignment is something, which is almost disliked by every individual reading this blog. However, this concept is entirely wrong. Teachers deliver the necessary knowledge and information to students, which helps them understand the topics related to various subjects. As a teacher, it is not acceptable behavior to present everything to their students and pamper them. This effectively harms the learning competencies of students, and thus education becomes meaningless to them. Therefore, with the help of assignments and homework, students are expected to learn at home. Many of us might still question why we are given assignments, and what is the primary purpose behind it?
Well, let me tell you some positive aspects of an assignment. • It helps You to invest your time wisely. • It allows You to explore more topics in-depth, which standard classroom time doesn’t permit. • It helps to maintain continuity in your studies and provides an excellent medium to revise your subjects before the exam. • Teaches you to work independently and to take responsibility for your work. • It helps you deal with deadlines in a real-life scenario and teaches You to use your time effectively by building a proper schedule. • It lets you learn how to use tools such as E-books, research materials, and computer software to find knowledge and implement it smartly. • Teaches You to implement your knowledge outside the book • It gives You a feel for your real exam and trains you to do better in the review. • The primary purpose of assignments is to increase the learning capabilities of students. The more we use our brains, the more they develop. This is a proven scientific fact, and this is the principle behind giving extremely creative and involving assignments to the students. Students learn a lot more when they read or practice something by themselves.
If you still think that assignment is a total waste of time, then its time to change your thoughts if you want to succeed in your future. An assignment is a needful and an essential part of our education, and it’s better to adapt it instead of opposing it. It may be challenging to adjust the skills initially, so Edumanta brings you top-tutors and mentors who will guide You to solve your assignment. We provide a 24×7 service. We also have the facilities of online tutoring where you can ask your doubts regarding your assignment. You can visit https://assignmenthelp.edumanta.com/, and everything will be a cakewalk for you.
The error term has a zero mean, variance equal to 2=X2 i ; and E (uiuj ) = 0 for i 6= j: You are given a sample of observations f(Yi ; Xi)g n i=1. You may treat Xi as being non-stochastic. Clearly annotating your answers:
(a) (5 marks) Derive the OLS estimator of : In the presence of heteroskedasticity, the OLS estimator remains unbiased (you are not asked to show this). Derive the variance of the OLS estimator of . (b)
(3 marks) Discuss how you can obtain the Best Linear Unbiased Estimator (BLUE) of given the heteroskedasticity.
2. Consider the simple linear regression model
Yi = + Xi + ui , i = 1; :::; n
in the presence of correlation between the error and regressor. The regressor exhibits variability in the sample, i.e., Pn i=1(Xi X) 2 6= 0: Under assumptions of homoskedasticity and the absence of autocorrelation, the IV estimator of that uses the instrument Z has the following (asymptotic) variance (no need to prove this statement)
V ar ^ IV = 2 P u n i=1(Xi X) 2 1 r 2 XZ ;
where rXZ 6= 0 is the sample correlation between X and Z and 2 u is the variance of the disturbance term u.
(a) (1 marks) Give the formula for ^ IV (you are not asked to derive it).
(b) (4 marks) Provide at least three factors that will help obtain more precise IV parameter estimates for : In your answer explain why the precision of parameter estimates is important.
(c) (3 marks) Discuss the following statement: “If X is not correlated with u; the best choice of instrument is using the regressor itself
You are interested in the extent to which removing the option of paid childcare has affected the share of time mothers compared to fathers spend with their children. The economic and health response to the pandemic has caused job losses, increased telecommuting, closed day care and schools, and placed state restrictions on in-home paid childcare – all of which may have affected the bargaining dynamic between parents in deciding how much time to spend caring for their children. The American Time Use Survey provides nationally representative estimates of how and with whom Americans spend their time, including hours spent on paid work and childcare. It is an annual cross-sectional survey asked during weeks when school is typically in session that is linked to the Current Population Survey (demographic questions were asked several months before the Time Use questions), thus you can observe demographic information and family relationships.
You have data from 2015-2019 and will have data in 2020 next year. You are crafting your econometric specification. Prior to 2020, all states allowed paid in-home care and had schools open. As of the time of the survey in 2020, all states had closed schools (shutdown of physical buildings and in-person instruction) but there was state variation in allowing paid in-home care for children less than 6 years old. That is, some, but not all, states deemed in-home childcare essential when stay-at-home orders went into effect in 2020 such that the availability of paid in-home care depended on the state you lived in. You want to learn the effect of disallowing paid childcare and closing schools on spousal allocation of childcare hours as measured by y, the ratio of hours mother spent on childcare to hours father spent on childcare. For example, y = 1 when mothers and fathers spent the same amount of time on childcare and y = 1.5 when mothers spent 50% more than fathers.
You restrict your sample to opposite sex, married couples with children where both parents worked in the prior year and both parents report positive hours of childcare.1 You can observe the following variables for each couple:
1For simplicity, we exclude all couples with first responders, like health care workers, for whom special rules applied in the state stay-at-home orders.
yit= hours mother spent on childcare divided by hours father spent in couple i in year t
x1it=1 if wife in couple i in year t is currently working for pay, 0 otherwise
x2it=wife’s paid work hours last week reported in year t for couple i
x3it=1 if husband in couple i in year t is currently working for pay, 0 otherwise
x4it=husband’s paid work hours last week reported in year t for couple i x5it=1 if couple i has a child under 6 years old in year t, 0 otherwise x6it=1 if couple i’s youngest child is 6-17 years old in year t, 0 otherwise
x7i=1 if wife in couple i has years of education = husband’s, 0 otherwise
x8i=1 if wife in couple i has years of education > husband’s, 0 otherwise
x9i=age of husband – age of wife
x10i=1 if wife’s occupation is teaching, 0 otherwise
x11i=1 if husband’s occupation is teaching, 0 otherwise
pandemict =1 if year is after pandemic hit (2020 or later), 0 otherwise
notavailit=1 if paid in-home childcare was NOT available for couple i in year t, 0 otherwise
Let’s simply refer to the effect of removing the option of paid childcare on the ratio of mother’s to father’s hours of childcare as the treatment effect of interest: TE.
Since some but not all states allow paid in-home childcare in 2020 at the time of the survey, you could estimate TE with αˆ3 by running ordinary least squares using only 2020 data with the following specification:
6 points If you ran an ols regression based on the specification above, what type of estimator is βˆ3? And what assumptions are necessary for βˆ3 to be unbiased?
4 points Compare the advantages and disadvantages of the two potential ordinary least squares estimators for TE: βˆ3 from the specification above and γˆ3 from assuming
4 points The treatment effect of removing the option of paid childcare may be different for families where one of the parents is themselves a teacher. How would you suggest modifying your specification and why?
20 points To complete the Master of Science in Economics at a University, students must complete the core Economics course and one of the four advanced econometrics courses, among other requirements. Students receiving a B- or better on their final course grade receive credit for the course, while students with a C+ or below do not receive credit. Instructors of the core Econometrics course calculate a final number score for the course with cutoff values for assigning the letter grades. Failing to receive credit for a course that you attended and paid tuition for can be discouraging possibly affecting your enthusiasm for the subject matter. However, sucessfully retaking a course you struggled in may boost your confidence and enthusiasm. Suppose that you were interested in estimating the Treatment Effect of receiving a passing grade on the number of advanced econometric courses taken.
Let x0 be the cutoff value for receiving a B- in a core Econometrics course. You observe for each student:
yi=number of advanced econometrics courses student i enrolled in
x1i=core Econometrics course score for student i
x2i=fraction of students failed by student i’s core Econometrics instructor
x3i=student i’s mean GPA (excluding econometrics courses)
x4i=1 if student i received an A in their Statistics class, 0 otherwise
x5i=1 if student i took Mathematical Methods for Economists, 0 otherwise
4 points To estimate the average treatment effect of receiving a passing grade on number of advanced econometrics courses taken, would you use a sharp or fuzzy Regression Discontinuity design? Explain.
4 points Write down your model specification to estimate the average treatment effect.
6 points Describe two graphical tests that would be important to perform and explain why.
6 points How would you design your falsification test? Explain why you chose it.
24 points Suppose that your goal was to estimate the effect of education on weekly hours worked for individuals approaching retirement. Assume that education is exogenous. The data set includes men over the age of 50 but less than 60 years old.
Suppose the data set includes a categorical variable that equals 1 if the man works 0 hours (that is, does not work), 2 if he works more than 0 but less than 35 hours per week, and 3 if he works more than 35 hours per week. There are no missing values.
4 points Which is the appropriate econometric model?
4 points Explain why you chose this model.
4 points Write the log likelihood function implied by your model choice.
Instead, suppose that you had the actual number of hours worked per week (e.g. 0,1,2,. . .) and you observe that a substantial share of men don’t work at all (have 0 hours of work).
4 points Which is the appropriate econometric model?
4 points Explain why you chose this model.
4 points Write the log likelihood function implied by your model choice.
a) Provide practical examples of how long-term planning, specifically in health and education facilities, could support governments’ objective for better quality labour force. [K&U 4.1: 5 marks]
b) Examine and apply two economic theories related to development (based on the ones discussed during the course) to the performance experienced by a least developed country (or countries) of your choice over the years. [A&A 1.4: 7 marks]
c) Identify and explain five challenges encountered by Least Developed Countries (LDC) that hinder their progress to become developed nations. You are required to provide practical examples and include empirical data in your answers.
d) Develop a community-based-project that could be carried out by the government of Nigeria in order to improve the standard of living among locals in a particular community. You are requested to include practical examples as well as potential sources to finance such project. [A&A 4.2: 7 marks]
e) Propose solutions and actions that can be implemented by a country of your choice in specific areas to help the country pursue its development process.
[S&E 4.3: 10 marks]
f) Compile a list of resources (human and physical) that the country requires in order for the proposals mentioned in question (m) to be implemented. In your answer, you are expected to individually explain the role of each resource to facilitate the country to reach its overall economic development objectives.
Analyze the GDP growth of India in the last five financial years (2012-2017) and discuss how variation in growth had impacted your company’s business with reason and details.
Answer:
In 2011-12 fiscal year India’s economic growth was at 6.2 per. It had grown by 5.4%, 5.2%, 4.7% and 4.8% in the first, second, third and fourth quarter, respectively, of 2012-2013, according to data released by the central statistical organization. That makes it 5 percent for the entire 2012-2013 fiscal, after the revision of base year it fall to 4.5%. Major sectors affected were the manufacturing sector showing growth of 2.6% only, mining and quarrying by 3.1% farm sector output expanded by just 1.4% and farm sector also grew at a slower rate of just 1.9%.
The figure below shows the GDP for the year 2010-2013 along with the revised base year.
There are two contradictory influences operating in the economy this year. The investment was picking up, whereas consumption was decelerating. Unless investment grows at such a rate that is more than for falling consumption demand to make up for it, the net impact will be negative. The slowdown was mainly because of the laggard industry; weakness in the services sector was also evident. The Reserve Bank of India had to cut policy interest rates at all three policy reviews by 25 basis points. The absence of ease of trading in terms of securing government approval along with high borrowing cost has stalled corporate investment. At the same time, high inflation and slower hiring have shaken consumer confidence and forced households to cut spending. The decrease in the rates of savings of the household sector in physical assets from 15.8% to 14.8% and private corporate sector from 7.3% to 7.1% have attributed to a decrease in the rate of GDP in the current year compared to the previous year.
In 2013-14, smart farm sector growth contributed to India’s economy to grow 4.7 percent, according to the gross domestic product (GDP) provisional estimates which were 1.4% last year. The GDP growth rate of 4.5% in the previous was lowest in the last 10 years. This is the second back to back when the economy’s growth remained below 5 percent. The last time the economic growth rate had been below the 5-per cent mark was in 1984-85 to 1987-88.
Good harvests in both the seasons of 2013-2014 lifted farm sector growth to 4.7%. It had grown 1.4 percent in the previous fiscal. For January-March, the farm sector grew 6.3 percent against 1.6 percent growth in the same quarter of 2012-13 but because of low movement in infrastructure and high-interest rates kept investments or capital formation low.
The below fissure shows GDP at market price and GVA at a basic price for the year 2014-2015
In 2014-15 the economy grew at 7.3 percent. The country outpaced China’s GDP of 7 percent in January—March quarter and posted a 7.5 percent growth in that quarter. Indian economy in 2014-2015 has emerged as one of the largest economies with strong economic outlook supported by controlled inflation, a rise in domestic demand, an increase in investment, a decline in oil prices and reforms among others.
Demand-side showing significant growth of final consumption which increased to 7.6% in 2014-2015 form 6.5% in 2013-2014, even the gross fixed capital formation increased from 3.0% in 2013-2014 to 4.1% in 2014-2015. Exports in 2014-2015 showed a growth of just 0.9% as compared to 7.3% in 2013-2014. Whereas, Imports, on the other hand, increased from -8.4% to -0.5%, due to a sharp decline in international oil prices bringing down the current year oil import bill.
Robust manufacturing growth in the year 2015-2016 makes India the fastest-growing major economy with a five-year high growth rate of 7.6 percent for the full fiscal. The farm sector also showed growth as against a contraction in the previous year, though the rate of expansion was low at 1.2 percent in 2015-16.
According to the data released by the Central Statistics Office (CSO), the growth in manufacturing and farm sectors during the January-march quarter went up to 9.3% and 2.3%, respectively. The trade, hotels, transport, and communication at 9.9%, the construction sector grew at 4.5%, financial, public administration, defense and other services at 6.4% and real estate and professional services at 9.1% in the fourth quarter of 2015-16. The manufacturing sector spurred to 9.3 percent, up from 5.5% in the last fiscal.
The growth rate of Indian Gross Domestic Product (GDP) increased from 6.6 percent in 2013-14 to 7.2 percent in 2014-15 and further to 7.6 percent in 2015-16, witnessing improvement in growth rate in the last three years. The implementation of strategic policy and systematic focus of the Government of India on economic growth and macroeconomic stability made India one of the fastest-growing major economies in the world. The Government has taken various initiatives and policy that strengthen the economy which include; reforms and liberalization of foreign direct investment in major sectors, fillip to manufacturing and infrastructure through fiscal incentives and concrete measures for transport, power, and other urban and rural infrastructure; measures to debottleneck the supply of key raw materials, etc.
The GDP grew 7.1% in the fiscal year 2016-17 because of economic growth slowed to 6.1% in the fourth quarter ending March 2017, compared with 7.1% in the previous quarter, as the government’s demonetization decision slowed activity in cash-dependent sectors.
In FY 17, the government’s final consumption expenditure was the major driver of GDP growth with an increase of over 23% as against 2.2 percent in FY 2016. The gross capital formation at GDP at constant prices, an indicator investment across the country, declined by 0.2% in FY17, continuing the downward trend since 2011. In FY 16, the export of goods and services witnessed a growth of 2,2% against y-o-y decline of 5.2% in FY15, owing to a partial recovery in commodity prices. The import witnessed a yo-y decline of 3.8% due to lower gold and other bullion imports.
The figure below shows the last three-year excerpt from Profit and loss statement of Aricent.
The above-presented profit and loss statement of Aricent is not very rosy. Thought the top line seems to be increasing from 2016 to 2017 but the company bottom line is showing huge loss in the company books of accounts. The GDP and other economical statistic show robust growth in these years but the financial statement of Aricent is not reflecting the same.
A major part of Aricent’s revenue is still formed communication and network equipment service providers despite buying out SmartPlay, a 1200-persons chip design services outfit from Bangalore, in 2015. Aricent was an engineering services company, which was sharply focused on telecom—with its ups and downs. Moreover, growing a company with a lot of debt, then even when the business generates cash, a part of it has to be deployed to repay debt.
From the above analysis of GDP growth from 2015 to 2017 have been contributed to different factors. For instance, in 2015 the reason for higher growth is high agricultural produce rather than high growth in the manufacturing or service sector. In 2016 the major reason for the increase in growth rate was huge government spending and not the service sector. The service sector have shown moderate growth during this period and has failed to be resilient to slow down in service and exports. In 2017, there is a slowdown in growth rate which is primarily because of demonetization. The service and manufacturing sector, private investment and demand are not gearing up, though the government has come up with many policies to promote India on the international front. Government initiatives like Make in India, skill development programs are not enough to bring India to a growth trajectory.
Question:
To
what extent India’s GDP growth in alignment with the top line and bottom line
of your company?
Answer:
The figure below shows the GDP of India from 2012 to the 2018 fiscal year.
The GDP growth rate has a negative trajectory from the last 3 years and on positive lines from 2012 to 2015. Aricent top-line sales show the increase in growth but this growth is not reflected in the company bottom line as it is falling y-o-y as even went into the loss for the last 2 years. Aricent is a non-listed company and its major competitors like HCL, TCS, CSR, and Wipro all are listed and give hard competition to the company. In the time of weak demand and a highly competitive environment, Aricent is trying to capture the market on the basis of acquisition.
Further,
Aricent missed the IPO affect its client confident. Aricent is facing fund
restraint in expanding its footprint further in the country. If it would be
able to launch IPO, this would have a positive impact on the company’s
reputation and it would help the company to further reach the capital market
for funds to expand its business.
The company has done an acquisition of smart play in 2015 and consequently, the loan book of the company has increased considerably. This lead to an increase in the interest burden putting a lot of presser on the company’s financial statement. Apart from the interest burden, the company has losses on account of the exchange rate due to weakling rupees. The fall in GDP since 2015 on account of slow down on demand-side as well as poor performance of the service sector hits the company profit as well.
Analyze the change in oil prices in the last one year and its impact on the Balance of payment of the country.
Answer:
Oil is one of the most major sources of energy which contribute 27.3% of global primary energy demand. Oil is a limited resource and will not last forever. In 2015, oil reserve to production ratio was at 50.7 which means if oil continued to produce at this rate, it would last about 51 years. Thus scientists are working hard to explore alternate sources of energy. Besides, those geoscientists are busy finding out new sources of oil and exploring unexplored reserves. Tight oil and shale oil are becoming techno-commercially to produce and market. In recent times, unconventional oil and gas resources significantly impacted the dynamics of global oil & gas trade. In fact, these unconventional oil resources have increased the supply of oil in the global market which resulted in a fall in global oil prices. Moreover, the OPEC liberalized its high price policy by cutting the production significantly against its prior policy of producing an artificial shortage of oil in the global market to increase the price. The graph below is showing how the high oil price in 2014 fell significantly at the end of 2014.
The figure below shows International Oil prices from Jan 2014 to Aug 2018
Lower oil prices shrank India’s oil import bill when the oil prices fall from $110 per barrel to less than $45 per barrel in January 2015. In December 2014, oil imports fell 29% to $9.9 billion from $13.9 billion as compared to the same month of 2013. At this time there was slower growth in gold imports, helped India to lower its import bill and narrow its trade deficit in the month.
The fall in import bill in 9 months in by 4.78% to $33.9 billion, mainly because of lower oil imports, but on the other hand, exports dropped 3.77% to $25.3 billion. As the fall in imports was greater than the fall in export, it narrowed the trade deficit to $9.4 billion from $10.1 billion a year ago. The fall in oil prices will help the government to lower its subsidy burden as well as provide some relief to the external sector by keeping the current account deficit in check and hence ease pressure on the rupee. More correction in crude oil prices will improve India’s current account balance.
The figure bellows shows the shrank in import bill due to the fall in oil prices in 2014.
Recently the plummeting rupee and increasing fuel prices due to global factors set to weakling already weekend currency, widen current account deficit and affect its growth outlook. Rebounding oil prices after huge fall from 2014 in combination with India’s unrelenting demand for oil will push up oil imports and widen its current account deficit that measures the flow of goods, services, and investments. The increasing deficit will further weaken rupee, as more imports mean the country will need to buy more foreign currencies to meet its needs. This challenging global environment has made the Reserve Bank of India (RBI) intervene aggressively this year to contain rupee depreciation and also the drawdown in foreign reserves has been significant.
India’s is a country that heavily relies on imported oil and gas, the rising world oil prices have significantly inflated the oil import bill. Due to this India’s trade position deteriorating, with July’s trade deficit hitting a five year high. Oil prices have shot up this year, reaching $80 a barrel in May for the first time since 2014. The OPEC-led output cut, falling Venezuelan and Libyan output, as well as by an imminent drop in Iranian exports as U.S. sanctions return in November this year boosted the oil price to the highest. It is being speculated that the oil import bill in the fiscal year 2019 could spike above $114 billion. Oil imports were about $88 billion between 2017 and 2018 which is higher than the previous year’s cost of $70 billion.
India needs to bring its oil demand down that will lower the oil imports; this will help India to make growth more resilient. According to a report, India’s oil demand will increase to 4.4% annually in the next ten years, compared to 3.7 per year in the last 10 years. This rising oil imports can hit India’s gross domestic product badly in the long term.
Question:
Also, analyze its impact on your company.
Answer:
Altran
Technologies SA, a technology consultant main business areas are as follows:
Automotive industry – Due to continuous increase in oil prices and limited availability of oil resources the company is increasing the budget development of autonomous and connected vehicles and tackling the related safety and security issues; environmental issues (energy efficiency, electric vehicle) and development of so-called “green” mobility; and search for new mobility models.
Aeronautics – It has also increased its R&D in developing fuel-efficient aircraft and align its properties according to the Industry 4.0 norms.
Space, Defense, and Naval – This sector needs huge energy resources that are provided by oil and increasing oil prices to have a significant impact on its cost sheet.
Energy – In the oil and gas segment the increase in the price of the oil help them to increase their top line but this might now be a permanent solution as there is regular research going on developing alternative and unconventional energy resources such as sail oil etc.
Industry and electronics – n the electronics and semi-conductors segment, growth should be driven by the search for electronic components that are more rapid, miniaturized, mobile and low in energy consumption, on the one hand, and by the development of embedded systems, particularly for the automotive industry, and connectivity with the Internet of Things (IoT), on the other hand.
Thus we can see Altran Group has high exposure to oil and gas prices as its business is concerned. The effect of high oil prices can be seen in the basic financial ratios of the company given below.
The
figure below show profitability ratio of the company for last 5 year.
We can see hoe the Profitability ratio has gone up from 2014 to 2016, but it’s coming down henceforth. This is basically because the company was able to bring its operating expenses down when the oil prices were going down but after 2017 when oil prices started going up, it started hitting the profits of the company.
Oil prices can hit the company in two ways, in the automotive industry, for instance, the oil is a complimentary product to cars, the demand for which comes down as in the reign of high oil prices the consumers postpone their purchases. In can of the energy sector, the product itself is oil and an increase in the price may increase the revenue of the company but it can also drop the overall demand on the flip side. In a heavy industry where there is a high need for power for which oil can be the primary source of energy, oil being at a higher price will increase the cost to the company and that will pull down the profits of the company.
