interest rates, unemployment & exchange rates a2 business studies unit 4
TRANSCRIPT
Aim:• Understand how businesses affected by interest rates,
unemployment and exchange rates.Objectives:• Define unemployment and exchange rates.• Explain how businesses are affected by interest rates,
unemployment and exchange rates.• Analyse business strategies to combat interest rates,
unemployment and exchange rates.• Evaluate business strategies to combat interest rates,
unemployment and exchange rates.
Aims and Objectives
• http://www.bbc.co.uk/news/business-16964069
• Why as a business, would you be concerned with the interest rate?
Starter
Task: Brainstorm in groups, business
strategies which could be used to combat high interest rates.
You may want to consider gearing, credit, products portfolios, expansion.
Interest Rate Strategies
Interest Rate Strategies
Reduce gearing ratio by selling assets
Reduce gearing ratio by raising capital from sale
of shares
Alter product portfolio to make products which
appeal to customers with less disposable
income.
Postpone expansion projects needing large
investments
Number of people willing and able to work but unable to find work.
http://www.bbc.co.uk/news/uk-17043305
2.67 million 8.4%
Unemployment
Structural UnemploymentUnemployment due to
declining industries such as mining or ship building
Frictional UnemploymentPeople who are unemployed
between jobs
Cyclical UnemploymentGeneral unemployment
which follows the business cycle
Seasonal UnemploymentUnemployment from seasonal jobs,
e.g. Fruit picking
Effects of Unemployment on Firms
Demand for most goods will fall as
average incomes fall
May lead to further redundancies.
Workers will be less inclined to demand
higher wages
Less willing to take industrial action,
business wage costs may fall or not
increase.
The price of one currency in terms of another
Significant for importers and exporters
Exchange Rates
An increase in the value of a country’s currency in relation to another.Lowers price of imported goods but may force exporters to raise prices.
A fall in the value of a country’s currency in relation to another.Raises the prices of imports but may allow exporter to reduce prices.Ex
chan
ge R
ate
Appr
ecia
tionExchange Rate D
epreciation
Exercise:a) In year 1, £1 = $2. Firm A exports
goods valued at £10,000 to USA. What will the USA $ price be?
b) Firm B imports goods valued at $15,000 from the USA. How much will it pay in £?
Answers: a) $20,000 b) £7,500
Exchange Rates
Exchange Rates
Exchange rate French car (€15,000) UK car (£12,000) French raw materials (€4 per kilo)
Originally £1:€1.5 £ in the UK € in France £ to UK businesses
£ appreciates £1:€1.8 £ € £
£ depreciates £1:€1.2 £ € £
Exchange Rates
Exchange rate French car (€15,000) UK car (£12,000) French raw materials (€4 per kilo)
Originally £1:€1.5 £10,000 in the UK €18,000 in France £2.67 to UK businesses
£ appreciates £1:€1.8 £8,333 €21,600 £2.22
£ depreciates £1:€1.2 £12,500 €14,400 £3.33
Exchange Rate Strategies• As value of £1 fell to its lowest level ever against
the Euro in 2008, Thomas Cook cancelled some of its short haul European holidays, and increased the number of deals across the Atlantic – the $ had depreciated against the £!
• What strategies can you think of in time of currency appreciation and depreciation?
Depreciation Exchange Rate Strategies
Reduce reliance on components imported
as imports more expensive.
Focus on marketing exports as now cheaper and more attractive to
other countries.
Sell assets overseas as these are now worth more in terms of £.
Expand operations in UK as apposed to
abroad as foreign assets are now more
expensive.
OPPOSITE FOR APPRECIATING
EXCHANGE RATES