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Edexcel IGCSE Business Studies 1.5.4 Impact of exchange rate changes

Practise predicting how exchange-rate changes affect importers, exporters, cash outflows and international competitiveness.

Syllabus
First assessment 2019
Course
Business Studies 4BS1

Exam points

  • analyse how depreciation changes import costs and export prices for a named business
  • predict the effect of a currency change on cash outflows or competitiveness
  • distinguish importer and exporter impacts when the exchange rate rises or falls

1.5.4 Impact of exchange rate changes question 1

[Maximum number: 1]

The Alternative Drum School (TADS) was set up in the wealthy area of Cricklade, England in 2008 by Ollie Tanner who had a passion for and enjoyed drumming. Ollie invested all of his savings into the drumming school. He saw the potential of being located away from other drumming schools.

Ollie promotes his business by writing columns in local papers, performing at local music festivals and by word of mouth recommendations. He has invested heavily in computer technology to allow students to produce the music they enjoy playing.

Ollie finds it difficult to maintain a good work-life balance. Ollie currently works 60 hours a week in a business that does not have reliable profits.

In May 2019 the exchange rate was £ 1=€ 1.05. TADS continued to provide the Italian drumming school with five lessons a week.

What effect would this change in the exchange rate have on the Italian drumming school?

Select one answer.

A

A decrease in cash outflows

B

An increase in import costs

C

A decrease in revenue

D

An increase in the internet costs

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