External Influences on a business

This set of cards have been made to provide you with factors that influence a business, and the implications this has on the business as a whole. This should hopefully be useful when considering evaluative points in you're unit 5w/6 exam :)

Hope its useful and good luck with you're revision peeps :D

External Influences

There are a number of varied external influences which affect decision making and a firms ability to meet their objectives. Some implications prove to be positive, whilst others are negative. How would a business react to such influences?

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Interest Rates - The price of borrowed money The Monetary Policy Committe regularly alter these rates. What impact would these alterations have on a business?

A Rise in Interest Rates


  • Reduce Spending
  • Increase saving
  • Prices of credit goods would rise
  • Mortgage repayments would be higher
  • Consumers would have a lower disposable income


  • Businesses will face higher overheads
  • Investments would be unviable
  • There will be a higher demand for the pound, therefore more foreign investment
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Interest Rates Continued...

A Fall in Interest Rates

  • Increase demand
  • More expenditure
  • The value of the pound will fall against other major currencies
  • Basically the reverse to 'a rise in interest rates'
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Exchange Rates

Exchange Rates - The price of one currency expressed in terms of another

(1) Free-Floating

Internation foreign exchange market. An increase in supply and demand of currency, will increase its value

(2) 'Dirty' Floating

A short term tactic, used by the Government by intervening in the market, to influence the value of a currency

(3) Fixed Exchange Rates

Exchanging single currency e.g Euro


  • Difficulty forecasting overseas earnings
  • Costs of imports?
  • Prices charged overseas

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Inflation is the rise in the level of prices and the corressponding fall in the value of money - measured using the Retail Price Index

There are 2 main causes

(1) Demand-pull (2) Cost-Push

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