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Chan
TOPIC QUESTION - PAPER 1
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Chan
March 4, 2021 at 12:59:16 PM
May/June 2020
Version 1
6.0 External Influences on Business Activity
6.3 Business and International Economy
YOUR ANSWER
An increase in exchange rate will result to higher cost of production as most parts of the watches were made from imported parts. However, as BMT is known for producing high quality watches, replacing existing components with locally produced parts may reduce the quality of its watches and affect the 6 years of reputation built by BMT. However, as demand for BMT watches continue to increase, BMT may be able to raise prices of its watches should exchange rates increase. Therefore, it would not affect the profits of BMT. As such, exchange rates should not be the most important factor to decide on importing parts for a high quality product.
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