3.7.5 economic factors / Fiscal and monetary policies / trade and protectionism / globalisation

Question 1

What is an exchange rate

Answer 1

The price of one currency expressed in terms of another

Question 2

When do exchange rates change

Answer 2

Fluctuations in demand for a currency, economic growth and interest rates

Question 3

What happens if pound increases in value

Answer 3

Pound strengthens - the pound can buy more euros, fewer pounds are needed to buy one euro

Question 4

What happens if pound weakens in value comparrison to the dollar

Answer 4

You can get fewer dollars for your dollar / more pounds are needed to buy one dollar

Question 5

Link with business decision making on international markets and exchange rates

Answer 5

Business may choose to target a specific international market when the exchange rate is favourable

Question 6

What may importers do when exchange rates are fluctuating

Answer 6

May switch international suppliers when Exchange rates are less favourable

Stockpile raw material and products when exchange rates are strong

Question 7

What may exporters do when exchange rates are fluctuating

Answer 7

Lower prices to limit the impact of strong currency

Increase promotion in foreign markets when currency is weak

Question 8

When will government use monetary and fiscal policies

Answer 8

When they want to influence economic activity in order to maintain growth and limit negative factors such as high levels of inflation, unemployment and negative externalities of growth.

Question 9

What is a monetary policy

Answer 9

Policy to adjust the amount of money in circulation and therefore influence spending and economic activity. Main form of monetary policy are interest rates - cost of borrowing and reward of saving

Question 10

What do monetary policies generally include

Answer 10

Manipulating interest rates
Influencing the exchange rate
Quantitative easing
Forward guidance

Question 11

Impact of high interest rates on business activity

Answer 11

Consumer and business spending falls
Inflation falls
Stronger £

Question 12

Impact of low interest rates on business activity

Answer 12

Consumer and business spending rise
Inflation may rise
Weaker £

Question 13

What does fiscal policy involve

Answer 13

Involves government spending and taxation as a means of controlling economic activity

Question 14

What is the budget balance

Answer 14

The difference between government income (mainly taxes) and expenditure in a fiscal year

Question 15

Expansionary fiscal policy?

Answer 15

Reduces direct and indirect tax to increase disposable income (increases borrowing)

INcrease spending in areas such as health and education. Spending stimulates demand for businessses and creates jobs. Budget deficit may rise

Question 16

Contractionary fiscal policy

Answer 16

Reduces spending in areas such as health and education, pressure on inflation slows, budget deficit may fall or reach a surplus

Increases direct and indirect taxes to slow down growth and reduce the budget deficit

Question 17

What are supply side policies and and what do the policies include

Answer 17

A range of measures intended to improve the efficiency and effectiveness of free markets

Policies include:
Manipulating the labour market - training, free movement of labour, tax cuts for low income households

Privatisation - transferring organisations to state ownerships to encourage competition

Reducing ‘red tape’ and regulations - making it easier for businesses to operate

Question 18

What does protectionism involve

Answer 18

Protecting domestic businesses and home industries against foreign competition and limiting the number of imports in a country

Question 19

What does free trade encourage and how may consumers benefit

Answer 19

Encourages specialisation which leads to greater efficiency and lower prices - also a key factor in reducing poverty

Question 20

Why may protectionism be looked badly upon and what may it cause

Answer 20

Protectionism can have an impact on poverty levels, prices may be high as there is less competition within a market. May provoke retaliation from other trading partners (countries).

Question 21

Factors affecting exports?

Answer 21

Soft loans

Subsidies

State procurement

Question 22

What are soft loans

Answer 22

generous loan agreements offered to exporting businesses to help them compete in foreign markets

Question 23

What are subsidies

Answer 23

Grants given to support exporting businesses so they can lower their prices in order to compete internationally

Question 24

What is state procurement

Answer 24

Favouring domestic businesses as suppliers over foreign competition

Question 25

Factors affecting imports

Answer 25

Technical barriers

Quotas

Tariffs

Question 26

What are technical barriers

Answer 26

Such as rules and regulations governing the standard of products entering the country

Question 27

What are quotas

Answer 27

Physical limits set on the number of units that are able to enter a country

Question 28

Tariffs

Answer 28

Tax on imports increases price of imported goods - raises government income and makes domestic businesses more competitive

Question 29

Risks of protectionism

Answer 29

May force businesses to use more expensive suppliers and therefore making them less competitive

May also encourage businesses to move abroad to avoid trading barriers

Question 30

Why might a government choose to impose protectionism strategies

Answer 30

In order to protect domestic industries and businesses from negative impact of competition from foreign firms

Question 31

What is globalisation and what does it involve

Answer 31

The process by which the world us becoming increasingly interconnected as a result of massively increased trade and cultural change.

Involves the movement of worldwide markets

Question 32

What does the process of globalisation allow for a business to do

Answer 32

Enter new markets
Access new skills 
Resources and expertise 
New technology 
Experience of international businesses and industries

Question 33

Benefits of greater globalisation

Answer 33

Support/encouragement by government and businesses
Lower costs of transportation and better infrastructure
Improved communications technology
Society becoming more culturally aware
Reduction in trade barriers
Forth in international trading blocks

Question 34

What multinational companies have encouraged globalisation (what does it encourage)

Answer 34

Toyota, McDonalds and HSBC - encourages the movement of labour between countries

Question 35

What are emerging markets

Answer 35

Low income countries that are experiencing rapid rates of growth

Question 36

Opportunities from globalisation

Answer 36

New markets - opportunities for businesses to move into new markets or operate on a global scale

Cheaper resources - access to raw materials

Labour - cheaper labour and access to skills

Economies of scale - growth of business leads to and advantage of size

Question 37

Threats of globalisation

Answer 37

Competition - home markets can be targeted by foreign competitors

Downward pressure on prices - cheaper materials and labour may forces prices down and therefore loss of potential profits

Threats of takeover - some businesses will face takeover pressure from foreign competition looking to enter the market

Economic risk - inflation and recession in other countries

Political risks - developing countries have less stable political systems and government

Question 38

Name two strategies that might be used when entering global markets

Answer 38

Strategic alliances - look for partnerships with international businesses that have experience operating in foreign markets

Strategic takeover - acquire brands and businesses that international customers trust