Impact of Exchange Rates on Business

This assignment delves into the significant impact of exchange rates on businesses. It analyzes price elasticity of demand in relation to currency fluctuations, investigates the effect of falling output on costs and productivity, and explores how depreciating and appreciating currencies influence a country's business economy and international trade. The report uses Germany's 2009 economic situation as a case study.

BUSINESS ECONOMICS

TABLE OF CONTENTS
Introduction..........................................................................................................................................3
Task 1....................................................................................................................................................3
A..................................................................................................................................................3
B..................................................................................................................................................3
C .................................................................................................................................................4
D..................................................................................................................................................4
E..................................................................................................................................................4
F .................................................................................................................................................4
Task 2....................................................................................................................................................5
A..................................................................................................................................................5
B .................................................................................................................................................5
C..................................................................................................................................................5
Task 3....................................................................................................................................................5
A..................................................................................................................................................5
B .................................................................................................................................................6
C..................................................................................................................................................6
D..................................................................................................................................................6
E..................................................................................................................................................6
F..................................................................................................................................................6
G..................................................................................................................................................6
H..................................................................................................................................................7
I...................................................................................................................................................7
J ..................................................................................................................................................7
Conclusion............................................................................................................................................7
References............................................................................................................................................8

INTRODUCTION
Business Economics (BE) is referred as the economic concept that is concerned with the
economic theory and quantitative methods by which businesses can be analysed and their
relationship with labour, capital and product markets can be evaluated. BE is related with the
formulation of business problems and fund the effective solution by applying appropriate tools.
Present report will cover several given scenarios in context of case studies (Crumpton, 2016).
TASK 1
A
Due to bad weather condition in India and Brazil, they have reduced the production of sugar.
Demand is increasing but supply is decreasing so, overall it affects the price of sugar. Along with
that, growth of population is also having its impact on pricing.
Illustration 1: Demand/Supply curve
(Source: Emmett, 2015)
B
Excluding weather, there are two major factors which affect the price and demand for gas.
Economic condition and petroleum prices along with the energy policies and taxes imposed by
government have their impact on the economic process of gas. Demand from manufacturer’s side
will be increased if economic condition would get changed (6 Factors That Influence Exchange
Rates, 2015). If petroleum fuel prices will fluctuate then it will have major impact on the pricing.
Thus, it can be said that higher demand will increase the prices and vive-versa.

C
Price elasticity of demand is related with the price and quantity demanded. These two
factors have major relationship between them. It is a calculative method that affect the price as per
quantity demanded.
 Availability of substitute products increase the elasticity so that consumers can switch easily
from one product to another (Khlif, 2016).
 As higher the income level of customers, it will increase the elasticity of gas.
 Time period also affects the elasticity as if customers will have to wait for a long period to
get the prices changed then people will search for new substitute products that are available
at cheaper rates.
D
ed. = % change in quantity demanded/ % change in price
(-15%) / 40%= -0.37
As per the given question, demand is price inelastic because percentage increase in price is
very high in comparison to quantity demanded that has decreased. Total revenues increases if price
raises and if price gets reduced then revenue decreases as well.
E
It is inelastic. Because changes in price or percentage of increment is high but in quantity,
there are little changes which is in decreasing order (A Brief Overview of Depreciation, 2015). So,
demand is considered to be inelastic.
It is very important for raw material suppliers as by following such techniques, they can
make changes in the price of sugar's raw material. Suppliers can calculate the revenues before and
after price changes.
Illustration 2: Elasticity of Demand

F
Marks take a step that it took 32% of sugar from Mars bar thus, size of chocolate goes from
51 grams to approximately 43 grams with 32% reduction of sugar. Thus, this process help to keep
same price of the product. Nestle used 221 Kcal in its product but after this, it has reduced Kcal
level from the chocolate and remained the pack size same (Güell, 2016).
TASK 2
A
Productivity is related with the total output per unit in context with per unit of input. Here,
the inputs are labour and capital and outputs are revenues and profits. It is calculated by diving
average output per period by total cost incurred or resources provided by company (capital, energy,
etc.) in that period (Crumpton, 2016).
B
With falling productivity, company will not be able to increase wages that indirectly
depresses the income tax receipt. It will increase unemployment in the country and also, it will have
high impact on the GDP of nation. With falling productivity, low level of investment will be there
because company is not having adequate financial resources. Decreasing productivity is having high
impact on long-run trend rate of economic growth (Muhammadi, 2015).
C
Social sites are one of the motivation tools which organizations can use to motivate its
employees. It can be understood in a way that if people get some time for using such sites then it
will give another level of energy to employees and they will work with more focus. Social
networking sites like Facebook and Twitter provide platform to build strong relationship among
people that increases the coordination between employees and this effective interaction helps them
in their working profile. Thus, if company banns the access of such sites then it will affect the
overall productivity and profitability of organization.
Illustration 3: Demand supply curve

TASK 3
A
Purpose of government intervention is to correct the market failures (A Brief Overview of
Depreciation, 2015). . Other reason is to enhance the equal distribution of income and health.
Government intervention ensures that fair and equal distribution should be there in context of
income and health. Sometimes, organization discriminates employees on the basis of race, nation,
etc. But, this intervention helps to protect such employees and provide equal rights to them in
company. Such intervention supports to improve the market infrastructure. This intervention helps
to reduce the price of goods for consumers. Price ceiling proves to be very helpful for buyers to
purchase as per their needs (Crumpton, 2016).
B
 Due to political pressure, government spends too much amount in inefficient projects and
thus, negative outcomes take place (Muhammadi, 2015). Sometimes, it enhances the
bureaucracy.
 Market itself decides what and when to proceed as in recession, government interventions
create just additional problems rather than providing solutions.
 These interventions take away the decision making rights of individuals. Thus, decisions
like how, when and where to invest get affected by government and individual cannot take
their own decisions.
C
In the year 2009, Germany was facing the situation of recession. So, many businesses were
undertaken by government (Exchange rate policies, 2016).
D
To increase the aggregate demand in Germany, government should make some changes in
monitory policies. It is like if central bank reduces the interest rate then there will be more
investment by firms and people as well as customer’s spending power will get increased as the cost
of borrowings will get reduced. This recommendation can help Germany to develop. By this way,
demand will be increased. By making changes in fiscal policy, government can develop the nation.
By reducing the taxes, demand will be raised that will help to generate more jobs (Sugahara, 2016).
Devaluation in exchange rate will increase the exports and there will be more foreign currency
inflow with increased value that will enhance the demand.
E
If German economy is in recession then inflation will be high because it will decrease the
value of currency. Thus, it makes exports competitive and imports expensive. Depreciation will

increase the cost of imports. In recession, value of currency decreases and thus, the cost increases.
Recession enhances the rate of unemployment in country. Thus, many employees are being
terminated from their jobs (Crumpton, 2016).
F
Depreciation refers to loss of value of currency and appreciation determines increase in the
worth of currency. If demand of currency increases then value will be increased. In the situation of
trouble, investors take their money and invest at some other place that will affect the value of
currency. Government intervention is having their impact on the worth of currency (Reid, 2011).
Central Bank will purchase foreign currency when the demand is low and its sales is high. Interest
rates affect the value of currency.
G
Interest and exchange rates are interlinked as these two directly get affected by the demand
and supply of currency. Increased interest rates give high returns which attracts the foreign currency
in Germany and also raises the demand of money. The opposite is true with decreasing demand and
interest rates. Decreased interest rates put pressure on Pound sterling because investors do not
invest in such market because of low return and high risk as it will decrease the demand of
currency. By this way, value will be decreased and so, it creates pressure on Pound sterling (Horner,
2016).
H
Fall in value of currency will positively affect the trade of UK. As export will be cheaper so,
more foreign currency inflow will be there. It increases the demand of currency so that more
investment will be there and high level of exports will take place in the country.
I
If exports will be more in the country then foreign currency's inflow will get raised that will
enhance the growth of economy. Along with that, fall in the worth of currency or depreciation will
evaluate the exchange rate so that more exports would take place (6 Factors That Influence
Exchange Rates, 2015).
J
Fiscal policy will be able to deal with such conditions. It deals with taxes and income level
of individuals. Higher taxes will decrease the disposable income of people and ignore consumer’s
spending. (Crumpton, 2016). It will harm to the economy of the country.
CONCLUSION
Business economy is related with the problems of company and provide solutions so that

firm can grow and achieve its objectives successfully. The report shows that if BE increases then
there will be more demand of currency and if it decreases then demand will be reduced as well. The
above report is focused on price elasticity of demand that is having its impact on demand.
Productivity and impact of falling output on costs is discussed in the study as well. As per given
scenarios of Germany's condition in the year 2009, report focused on the impact of depreciation and
appreciation on business economy and also, covered the impact of fluctuating exchange rates on
trade.

REFERENCES
Books and Journals
Crumpton, B., 2016. The Library applicability and Usefulness of the MLIS in Non-Traditional
Library Settings. The bottom line. 15(2).
Emmett, R., 2015.Research in the History of Economic Thought and Methodology. Emerald Group
Publishing Limited.
Güell, J., 2016. Cities futures. A critical assessment of how future studies are applied to cities.
24(3).
Horner N., 2016. Energy foresight, scenarios and sustainable energy policy in Brazil. The Asian
Review Of Accounting. 18(5).
Khlif, H., 2016.IFRS adoption and auditing. A Review. 14(3). pp. 312-314.
Reid, C., 2011. Reference Reviews. Emerald Group Publishing Limited.
Sugahara, S., 2016. Global convergence of accounting education an exploratory study of the
perceptions of accounting academics in Australia and Japan. The Asian Review Of
Accounting. 24(3).
Muhammadi, A., 2015. Multinational transfer pricing of intangible assets: Indonesian tax auditors’
perspectives. The Asian review of accounting. 24(3).
Online
6 Factors That Influence Exchange Rates. 2015. [Online] Available through:
<http://www.investopedia.com/articles/basics/04/050704.asp>. [Accessed on 2nd August
2016].
Exchange rate policies. 2016. [Online] Available through:
<http://www.economicsonline.co.uk/Global_economics/Exchange_rate_policies.html>.
[Accessed on 2 August 2016].
A Brief Overview of Depreciation. 2015. [Online] Available through:
<https://www.irs.gov/businesses/small-businesses-self-employed/a-brief-overview-of-
depreciation>. [Accessed on 2 August 2016].