Photo AI
Outline ONE method of payment which could be used by exporters to reduce their financial risk - HSC - SSCE Business Studies - Question 25 - 2011 - Paper 1
Question 25
Outline ONE method of payment which could be used by exporters to reduce their financial risk. Analyse TWO financial influences on global business.
Worked Solution & Example Answer:Outline ONE method of payment which could be used by exporters to reduce their financial risk - HSC - SSCE Business Studies - Question 25 - 2011 - Paper 1
Step 1
Outline ONE method of payment which could be used by exporters to reduce their financial risk.
Answer
One effective method of payment that exporters can use to mitigate financial risk is the use of Letters of Credit (LC). A Letter of Credit serves as a guarantee from a bank on behalf of the buyer, ensuring that the seller receives payment once the specified terms are met. This method provides security to exporters, as they can receive payment without the risks of non-payment or issues of creditworthiness from the buyer.
Step 2
Analyse TWO financial influences on global business.
Answer
-
Exchange Rates: The fluctuation of currency exchange rates significantly impacts global business operations. A weaker domestic currency can make exports cheaper and more competitive in foreign markets, thus increasing sales revenue. Conversely, a stronger domestic currency can make exports more expensive, reducing competitiveness and potentially leading to a decrease in sales.
-
Interest Rates: Changes in interest rates can influence costs of borrowing for businesses engaged in international trade. Lower interest rates may encourage investment and expansion as borrowing costs decrease, promoting growth in international markets. Higher interest rates may deter borrowing, leading to reduced expansion and investment in global operations.