1
Q
What may importers do when exchange rate changes?
A
- May switch international suppliers when the exchange rate is less favourable
- Stockpile raw material and products when currency is strong
2
Q
What may exporters do when exchange rate changes?
A
- lower prices to limit the impact of a strong currency
- increase promotion in foreign markets when currency is weak
3
Q
What is inflation?
A
The general rise in prices over time.
Measured by the consumer price index (CPI).
A low rate of inflation can be managed by businesses but a high rate will increase costs and reduce demand
4
Q
What may a business do during high inflation?
A
- May increase prices to pass costs on to consumers or may decide to absorb the cost rises
- Will look to reduce internal costs to protect profits
- Price rises may fuel further inflation
5
Q
What may a business do during low inflation?
A
- Businesses feel confident in a stable economic environment
- Business may look to invest and grow
6
Q
What may a business do during deflation?
A
- Business may struggle to pay debts - assets may have to be sold to pay off debts if deflation persists
- Low demand may lead to redundancies and rationalisation
