Photo AI
Using the data in Extract G and your own business knowledge, assess the likely effects of the changes in interest rates between 2019 and 2021 on Buy it Direct. - Edexcel - A-Level Business - Question 2 - 2022 - Paper 2
Question 2
Using the data in Extract G and your own business knowledge, assess the likely effects of the changes in interest rates between 2019 and 2021 on Buy it Direct.
Worked Solution & Example Answer:Using the data in Extract G and your own business knowledge, assess the likely effects of the changes in interest rates between 2019 and 2021 on Buy it Direct. - Edexcel - A-Level Business - Question 2 - 2022 - Paper 2
Step 1
Positive effects on Buy it Direct:
Answer
Interest rates have fallen significantly from 0.75% in 2019 to 0.1% in 2021. This decrease can benefit Buy it Direct by lowering their borrowing costs, allowing them to offer more competitive prices and potentially increase sales. Moreover, the low interest rates may encourage investment in various projects, such as enhancing their bathroom division, which is less expensive due to the lower cost of borrowing. There could also be increased consumer spending on household appliances and consumer electronics as customers are attracted by cheaper credit finance options for purchasing these products.
Step 2
Possible counterbalance:
Answer
Conversely, the decline in interest rates could lead to lower rewards for savers. This situation might reduce the ability of some consumers to spend on higher-priced items, like household appliances, resulting in decreased demand for Buy it Direct’s offerings. Additionally, the depreciation in the value of the pound may raise the costs of importing products from abroad, such as those from China, which could affect Buy it Direct's pricing strategy.
Step 3
Potential judgement:
Answer
It is important to note that while the interest rate has lowered from 0.75% to 0.1%, this is only a 0.65% decrease between 2019 and 2021. Therefore, the overall impact on Buy it Direct may be limited, suggesting that the effects of interest rate changes should be considered in conjunction with market conditions and consumer behavior.