Take this Exam: A-Level Business: Global Business and the External Environment | Zestly

Question 1

An economy experiences a sudden rise in interest rates. Firm A is heavily borrowed, Firm B holds large cash reserves, and Firm C sells luxury goods on credit. Which firm is most exposed, and why?

Accepted Answer

Firm A, because its interest payments on existing debt will rise, reducing profit.

Answer

Firm B, because its cash reserves will lose value due to inflation.

Answer

Firm C, because its customers will find it easier to borrow money to buy goods.

Answer

All firms are equally exposed because interest rates affect the entire economy.

Question 2

A firm has fixed-price contracts with customers for the next year but has just seen its raw material costs rise by twenty per cent due to inflation. What is the impact on the firm, and what is its most realistic option?

Accepted Answer

The firm's profit margin is squeezed; it must focus on internal cost-cutting to survive the contract period.

Answer

The firm is protected from inflation; it should increase its marketing spend.

Answer

The firm's revenue will rise; it should hire more staff to meet the expected demand.

Answer

The firm's profit margin increases; it should invest in new machinery.

Question 3

A firm launches a marketing campaign in a new country that inadvertently uses symbols considered offensive by the local culture, leading to a boycott. What should the firm have done during the research stage?

Accepted Answer

Performed thorough cultural due diligence and local focus group testing.

Answer

Increased the budget for digital advertising to overcome the negative sentiment.

Answer

Conducted a financial audit of the local market's potential growth.

Answer

Focused exclusively on the legal requirements for product safety.

Question 4

A firm can buy a component from a cheap supplier with poor environmental standards, or from an audited supplier at a noticeably higher price. Its purchasing manager argues for the audited one. What does this decision actually turn on?

Answer

It is purely a financial decision, and choosing the cheaper supplier is what any well-run firm would do.

Answer

It does not matter which is chosen, since suppliers everywhere have to meet the same legal standards anyway.

Answer

It turns on a trade-off: the higher price is certain and immediate, while what it buys is a reduction in the risk of a scandal, a disrupted supply, or a customer and staff reaction that would cost far more — and the size of that risk is what has to be estimated.

Answer

It is purely an ethical decision, and the firm can be confident that choosing the audited supplier will raise its profits in the long run.

Question 5

A firm decides to close a factory to boost short-term dividends for shareholders, despite the factory being the main employer in a small town. How would the shareholder-primacy and stakeholder views differ on this decision?

Answer

Both views would oppose the decision because it destroys long-term value.

Answer

Shareholder-primacy would support the decision as it increases profit, while the stakeholder view would oppose it due to the harm caused to the local community.

Answer

Shareholder-primacy would oppose the decision as it harms the community, while the stakeholder view would support it to increase dividends.

Answer

Both views would support the decision as long as it is legal.