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TOPIC QUESTION - PAPER 1
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Chan
June 16, 2021 at 7:12:01 AM
Feb/Mar 2019
Version 2
6.0 External Influences on Business Activity
6.3 Business and International Economy
YOUR ANSWER
Appreciation of the exchange rate may make imports cheaper but reduce exports. As GXC imports its raw materials to produce its car components, it would reduce GXC’s cost. However, as GXC sells its components to car manufacturers in country Y, demand may reduce as it is now more costly for country Y to import from Country X. GXC’s managing director should worry about the recent appreciation as this will reduce its revenue, unless GXC is able to sells its components within country X.
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