Fig. 1 shows part of the trading arrangement used by Nyota Coffee Cooperative. The cooperative is in Rwanda and sells roasted coffee beans to a specialist r...
Question 1 Report
Fig. 1 shows part of the trading arrangement used by Nyota Coffee Cooperative. The cooperative is in Rwanda and sells roasted coffee beans to a specialist retailer in the United Kingdom. Coffee is loaded into containers and sent to the retailer. The retailer pays in pounds sterling through its bank. Nyota then changes the pounds into Rwandan francs to pay growers and buy new drying equipment. The cooperative is considering exporting to two more countries next year. Its manager wants staff to understand that goods, money and foreign exchange move in different directions during international trade.
Fig. 1
(a) Which country is exporting the coffee beans in Fig. 1? [2]
(b) Which term describes the pounds sterling received by Nyota from the United Kingdom retailer? [2]
(c) Which difficulty could Nyota face when changing the pounds into its own currency, and why could this affect its profit? [2]
Answer Details
(a) Rwanda is the exporting country [1], because coffee beans are goods sold from Rwanda to another country [1]. [2]
(b) The pounds sterling are foreign exchange [1], because they are payment in another country’s currency [1]. [2]
(c) The exchange rate may change unfavourably [1]. Nyota could then receive fewer Rwandan francs when converting the pounds, reducing profit or increasing the local-currency cost of its purchases [1]. [2]
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