LucyArts Ltd is a UK business that imports art supplies kits from the USA. On average it imports approximately 2,000 art supplies kit each month.
Each kit costs $3.
Last year the exchange rate between the British pound and the US dollar was £1 = $1.77, and this year it is £1 = $1.55.
Identify ONE effect on LucyArts Ltd of this change in the exchange rate.
Select ONE answer:
- The cost of buying the art supplies kits from the USA will rise
- Lower variable costs of art supplies kits from the USA
- Increased imports of art supplies kits from the USA
- Increased demand for its art supplies kits in the UK
Show the workings to arrive at your answer, and explain and justify your reasons:
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This multiple choice question is suitable for Business Studies KS4 & KS3 classes
The answer is 1
- Correct – if the exchange rate reduces then goods will cost more.
- variable costs does not affect the sale of art kits.
- if increased importing could reduce the cost but would not be affected by the exchange rate.
- demand does not affect the exchange rate.
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