Please enable JavaScript.
Coggle requires JavaScript to display documents.
Analysing the external environment economic (exchange rates and inflation)
Analysing the external environment economic (exchange rates and inflation)
exchange rates
a currency can appreciate/ depreciate when its value rises/ decreases compared to another currency
price of one currency against another
determined by supply and demand
constant fluctuation
can cause uncertainty and planning and budgeting difficult
floating exchange rates
Uk operates within this
demand for sterling increases then pound value increases
if supply of pound on the foreign market increases then value will decrease
reasons for the demand of currency
need to pay invoices from overseas suppliers
may have received payments in a different currency
buying currency for overseas trips
businesses sending profits back to base countires
impacts on exporters
rise in value of the £= less competitive export prices and smaller profit margins
fall in the value of the pound= more competitive export prices and larger profit margins
inflation
increase in the general level of the price of goods within an economy
sustained increase
fall in purchasing power and value of money
governments target is 2%
deflation
decrease in the general level of prices of goods within an economy or a rise in the purchasing power of money
measurements of inflation
retail prices index
includes housing costs such as mortgage and council tax
consumer price index
more accurate than the RPI and tracks changes in the price of an average persons shopping basket
will show the overall trend, average is weighted so larger importance is allocated to different categories
ows collect 120000 price/ mnth for a basket of about 650 goods and services
causes of inflation
cost push
rising cost of raw materials
pay demand
rising utility bill
demand pull
higher consumer demand
world demand for goods and services such as oil and food
consequences of inflation
lower real value of debt
loss of interntionl competitiveness
higher wage demands leading to wage price spiral
can disrupt business planning
budgeting becomes difficult
higher interest rates
hyper inflation
where the value of money decrease so fast it becomes worthless
effects of inflation
business expect suppliers to increase their prices of raw materials and components (may raise selling prices in anticipation)
may suffer falling sales in high rates on inflation
can be difficult to maintain competitiveness
offer benefits to decision makers
low and sable rates of inflation may be beneficial for businesses
impacts of deflation
temporarily boost spending
allow managers to maintain prices while costs are falling
pose significant threat
managers may have to reduce wages and saleries
inc burden of debt