What change in the economic climate could make a UK toy manufacturer more competitive when it exports products to Canada? The manufacturer has received an o...
Question 1 Report
What change in the economic climate could make a UK toy manufacturer more competitive when it exports products to Canada? The manufacturer has received an order from a Canadian retailer but quotes its prices in Canadian dollars. It wants to increase export sales while ensuring that each product still contributes towards manufacturing costs.
(a) Identify the currency used in Canada. [1]
(b) Which exchange-rate movement could make the manufacturer's products cheaper for Canadian customers? [1]
(c) Explain one risk to profit if the pound rises in value after the order is agreed. [2]
Answer Details
(a) The currency used in Canada is the Canadian dollar. [1]
(b) A fall, or depreciation, in the pound against the Canadian dollar could make the manufacturer’s products cheaper for Canadian customers. [1]
(c) If the pound rises after the order is agreed, the Canadian-dollar revenue converts into fewer pounds. UK manufacturing costs still have to be paid in pounds, so revenue and profit measured in pounds may fall. [2]
Examination reminder: A weaker pound helps UK exporters price competitively abroad. A stronger pound can reduce the pound value of foreign-currency revenue.
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