CMA Foundation · Fundamentals of Business Economics and Management · Economic and Business Environment
A packaged-snacks company in Pune finds that a sudden rise in the repo rate has made its working capital loans costlier. Which component of the business environment does this change mainly belong to?
The change belongs to the economic environment. A repo rate rise is a monetary policy action that raises borrowing costs for firms, so it is classified under economic factors such as interest rates, inflation and credit conditions, not social, technological or natural factors.
- AEconomic environmentCorrect
- BSocial environment
- CTechnological environment
- DNatural environment
Explanation
Interest rates and monetary policy decisions such as a repo rate change are economic factors. They affect cost of borrowing and demand. Social, technological and natural environments deal with culture, innovation and physical resources respectively.
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