Business Studies Multiple Choice Question – 2 August 2017

A small car dealer, which buys and sells second hand cars, has £5,000 in the bank in savings and has no bank loans. Interest rates rise substantially. What is the MOST LIKELY to be the effect on this firm?
Select ONE answer:

  1. It might be better off because its car sales are likely to rise and it will receive more interest on its savings
  2. It might be worse off, although it will receive more interest on its savings, its car sales will fall
  3. It might be worse off because its car sales will fall and it will receive less interest on its savings
  4. It might be better off because its car sales will rise although it will receive less interest on its savings
  5. It might be worse off because its car sales will not change and it will receive less interest on its savings

What is the definition of an interest rate?
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This is multiple choice question is suitable for Business Studies KS4 classes.

The answer is 2 – It will receive more interest on its £5,000 in savings, especially as it has no bank loans outstanding. However, it is likely that car sales will fall, as buying a car is seen by many consumers as a luxury item, so any increase in interest rates is likely to make purchasing a car more expensive for those who have to borrow money to buy one.

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