Racism in Australia
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2. Interest rates – an interest rate is the fee charged by the lender for the use of their money. The rate is a percentage of how much extra must be paid back. A global business needs to know the interest rates in the countries it is operating in. If a business has loans it will be affected. Also, the interest rate will affect the customers in each country. If interest rates go up in Korea then not as many Koreans will have as much money to spend because they will need more money to repay their loans. This means they are less likely to buy tickets from Qantas.
3. Overseas borrowing – a business that borrows from overseas will need to remember that the AUD affects how much has to be paid back and also watch the interest rates of another country. Many businesses borrow in US dollars even when neither company is a US company. This is because it is regarded as the most stable/reliable currency and therefore the lowest risk.
Sample Question 3 Marks
Explain the effect of a fluctuation in currency on a global business.
If the domestic currency appreciates then a global business will find it more difficult to export competitively. The price of their exported good or service will rise in overseas markets. The business, however, will find it less expensive to purchase imports. If the company uses imports to produce their goods and services then their cost of production will decrease. So there are advantages and disadvantages for a business of a rise in the dollar. If the dollar depreciates the results will be the opposite – it will be more expensive to buy imports but the price of its exports will be less and more competitive.