Business Studies Multiple Choice Question – 6 August 2017

A small UK high street retailer obtains materials from a foreign supplier in the EU. The cost of buying each product is 30 Euros. The retailer sells the goods in the UK for £35 each. The exchange rate is currently £1= 1.5 Euros. It then changes to £1 = 2 Euros.

Which TWO of the following would be the MOST LIKELY results of this change in the exchange rate for the UK retailer?

Select TWO answers:

  1. There will be no change because the price in the UK will stay the same
  2. The cost of buying the goods from the EU will rise
  3. The cost of buying the goods from the EU will fall
  4. The business will have to exchange more pounds to get the same amount of Euros
  5. The business will have to exchange less pounds for the same amount of Euros

What is an exchange rate?
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This is multiple choice question is suitable for Business Studies KS4 classes.

The answer is 3 & 5 – The cost of buying €30 at an exchange rate of 1.5 is £20. The cost of buying €30 at an exchange rate of 2 is £15, a cost saving of £5.

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Business Studies Multiple Choice Question – 5 August 2017

Chart 1

Identify TWO MOST LIKELY effects on small businesses of the changes in interest rates shown in the graph above?

Select TWO answers.

  1. Increased consumer spending using credit cards
  2. Lower costs for businesses who have an overdraft
  3. Less consumer spending with small businesses
  4. Higher variable costs for small businesses with variable rate overdrafts.
  5. Higher fixed costs for small businesses with fixed bank loans

Why do savings theoretically fall when interest rates come down. Which types of savers are most impacted by falls in interest rates?
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This is multiple choice question is suitable for Business Studies KS4 classes.

The answer is 3 & 4 – Sales are likely to fall as consumers reduce their spending as interest rates rise, and those with large debts or mortgages have less disposable income to spend, and higher variable costs from those on variable interest rate overdraft arrangements.

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Business Studies Multiple Choice Question – 4 August 2017

Rob owns a computer repair business. He has a small mortgage on his workshop, £3,000 fixed interest loan, and a small overdraft of £800. Most of his customers are people who have computers that are a few years old.

What TWO of the following are MOST LIKELY to be the effect on Rob’s businesses if interest rates decrease?

Select TWO answers:

  1. The amount of interest paid on the loan will fall
  2. The mortgage payment will increase
  3. The amount of interest paid on the overdraft will fall
  4. The business will cease to trade
  5. Some customers may now choose to buy new computers and may not use Rob’s services
  6. The amount of interest paid on the loan will rise

The interest rate set by the Bank of England is known as the?
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This is multiple choice question is suitable for Business Studies KS4 classes.

The answer is 3 & 5 – The mortgage payment will likely fall as many mortgages are on variable rate leading, the loan interest will not change as it is fixed, but the overdraft payment is likely to fall as it too is on a b=variable rate. Rob’s customers usually have their computers repaired which are old. If interest rates go down, some may be tempted to buy new computers instead of having them repaired by Rob, as the interest cost on the moneys they might borrow to buy a new computer are lower.

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Business Studies Multiple Choice Question – 3 August 2017

Most of the customers of a furniture shop buy items through borrowing the money. The furniture shop has a bank overdraft and a bank loan. Interest rates come down. What is the MOST LIKELY to be the effect on this firm?
Select ONE answer:

  1. Its sales will rise and it will pay more interest on its borrowings
  2. Its sales will rise and it will pay less interest on its borrowings
  3. Its sales will fall and it will pay more interest on its borrowings
  4. Its sales will fall and it will pay less interest on its borrowings
  5. It sales will fall and it will pay the same interest on its borrowings

Which institution sets interest rates in the UK
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This is multiple choice question is suitable for Business Studies KS4 classes.

The answer is 2 – It will pay less interest on the bank overdraft which are often variable rate, and although it is not specified in the preamble it is a possibility that the loan is also on a variable rate and the interest costs will decrease each month. Sales will rise as buying furniture is often seen as a luxury item to purchase by consumers which is often done via borrowing money.

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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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