2.5 External Influences

Question 1

How might an increase in interest rates affect a business

Answer 1

It could increase borrowing costs, reduce consumer spending causing lower profits

Question 2

What is the impact of exchange rate depreciation on a business that exports goods

Answer 2

Depreciation makes exports cheaper for foreign buyers, potentially increasing demand

Question 3

What is the business cycle and how does it affect business

Answer 3

The business cycle refers to fluctuations in economic activity e.g boom, recession. Businesses may experience higher sales during booms and lower sales during recession

Question 4

What is the purpose of competition policy

Answer 4

To promote fair competition and prevent monopolies, ensuring consumers benefit from lower prices and better quality

Question 5

How can enviromental protection laws affect businesses

Answer 5

They may increase costs due to compliance requirements but can also encourage innovation and improve a business’s reputation

Question 6

What is the competitive enviroment and why is it important

Answer 6

The competitive enviroment refers to the level of competition in a market. It is important because it influences pricing, innovation and market share.