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Using the data from Extract F, assess the impact of the exchange rate movements between January 2019 and April 2019 on the total costs of a business, such as Tropicana, which imports to the USA from Brazil. - Edexcel - A-Level Business - Question 2 - 2022 - Paper 1
Question 2
Using the data from Extract F, assess the impact of the exchange rate movements between January 2019 and April 2019 on the total costs of a business, such as Tropica... show full transcript
Worked Solution & Example Answer:Using the data from Extract F, assess the impact of the exchange rate movements between January 2019 and April 2019 on the total costs of a business, such as Tropicana, which imports to the USA from Brazil. - Edexcel - A-Level Business - Question 2 - 2022 - Paper 1
Step 1
Assess the Exchange Rate Change
Answer
Between January 2019 and April 2019, the exchange rate for the Brazilian Real (BRL) against the US dollar (USD) fluctuated, impacting the costs of importing goods from Brazil. As the BRL depreciated, the cost of goods priced in BRL increased for businesses based in the USA. For Tropicana, which imports products like orange juice, this means that the cost of oranges, and therefore juice, would likely rise, affecting profit margins.
Step 2
Consider the Proportion of Imports
Answer
It is essential to evaluate the proportion of Tropicana's total costs that are attributed to Brazilian imports. If a significant percentage of Tropicana's costs come from Brazil, fluctuations in the exchange rate would have a more pronounced effect on its overall expenses. Conversely, if Brazilian imports comprise a smaller fraction, the impact of exchange rate changes may be more subdued.
Step 3
Evaluate the Broader Impact
Answer
The impact of exchange rate fluctuations can also influence pricing strategies, market competitiveness, and consumer demand for Tropicana's products. If costs rise substantially due to unfavorable exchange rates, Tropicana may need to adjust its pricing, which could lead to decreased sales if prices become less attractive to consumers.