CAIE A-Level Business A2 6.1.2 Economic Questions

Evaluate the impact on CD of the appreciation of country K's exchange rate.

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Indicative content

Responses may include:

AO1 Knowledge and understanding

- Exchange rate measures the value of one currency in terms of another.

- Appreciation means the value of a currency has increased in terms of another i.e. it buys more of another currency than previously.

- Makes imports cheaper but exports more expensive.

AO2 Application

Limited application, ${ }^{\text {APP }}$ applies knowledge to CD once.

Developed application, ${ }^{\text {APP }}+{ }^{\text {APP }}$ applies knowledge to CD twice.

- Chemicals are currently produced in country K.

- Chemicals could be imported more cheaply.

- Increase in price of CD exports to country C.

- CD's plans for expansion.

- Cost push inflation in country K - including energy costs and raw materials.

- Environmental responsibility of CD.

AO3 Analysis

Limited analysis AN - candidate shows one link in the chain of analysis.

Developed analysis AN L2 AN - candidate shows two or more links in the chain of analysis.

- Appreciation could enable CD to import chemicals at a lower cost and thus reduce cost pressures to increase the selling price AN. This could prevent a reduction in sales in country K L2 AN .

- CD's products will be a higher price in export markets such as country C therefore reducing sales AN.

- Appreciation of country K's currency will reduce the cost of CD's plans to expand operations abroad AN.

- Appreciation could increase the price competition from MNC products produced outside of country K AN , reducing the sales of CD L2AN.

PUBLISHED

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AO4 Evaluation

Limited evaluation ${ }^{\text {Eval }}$ - limited supported judgement and/or a weak attempt at evaluative comment.

Developed evaluation ${ }^{\text {L2 }}{ }^{\text {Evat }}$ - supported judgement and/or reasonable evaluative comment.

Developed evaluation in context ${ }^{\mathbf{L 3} \mid \text { Eval } \mid}$ - supported judgement in context and/or reasonable evaluative comment in context.

- Depends how much country K's currency appreciates and for how long.

- Depends on PED.

- As sustainability is important, CD may prefer to continue purchasing chemicals domestically rather than importing so appreciation won't bring any direct benefit.

- Depends whether energy costs will be reduced by the appreciation - this could happen if oil and gas are imported to country K to generate electricity.

Accept all valid responses.