Unit 2: Influences

• What is a business risk?

  A business risk is anything that threatens the continued success and existence of an organisation.
• How can business risks be categorised?

  Business risks can be categorised as strategic, compliance, operational, and financial risks.
• Why is it important for businesses to be aware of risks?

  Being aware of these risks allows businesses to prepare and mitigate them in advance.
• What are strategic risks?

  Strategic risks arise from direct actions taken by the company, such as releasing a new product or entering a new market.
• What can an incorrect strategic decision lead to?

  An incorrect strategic decision can potentially lead to financial loss and damage to the company’s reputation.
• What strategies can be used to identify and reduce strategic risks?

  Scenario planning and market research are strategies used to identify and reduce strategic risks.
• What do compliance risks include?

  Compliance risks include the potential for laws, rules, and regulations to impact a business’s operations or its industry.
• What can happen if a business fails to follow regulations?

  Failure to follow regulations can lead to legal penalties or damaged reputation.
• What do businesses often employ to ensure compliance?

  Businesses often employ legal and compliance teams to ensure all company policies and activities adhere to relevant laws and regulations.
• What are operational risks related to?

  Operational risks relate to the everyday running of a business.
• What are some sources of operational risk?

  Bad management, poor training, and outdated equipment are all sources of operational risk.
• How can businesses mitigate operational risks?

  Businesses can mitigate these risks through good governance, regular training for staff, and continual updating of production systems.
• What are financial risks associated with?

  Financial risks are associated with a company’s financial structure and transactions.
• What can cause financial risks?

  Financial risks could occur due to changes in stock prices, interest rates, and currencies.
• What can poor financial management lead to?

  Poor financial management can lead to insolvency, which is why financial risks need to be carefully managed.
• What strategies can help businesses manage financial risks?

  Strategies such as adopting sound financial management practices and using financial instruments like forwards, futures, options, and swaps can help businesses manage financial risks.
• What are the main strategies businesses use to manage risks?

  • Risk avoidance: halting any action that could lead to risk
  • Risk reduction: taking steps to reduce potential damage
  • Risk sharing: sharing risks among several businesses
  • Risk acceptance: accepting the consequences of risk
• What does a risk management plan involve?

  • Defining risks
  • Developing procedures to warn businesses of risk
  • Deciding in advance how to address these risks
• What external factors can affect business risks?

  External factors such as economic, social, legal, technological, and environmental factors can significantly affect business risk.
• How can changes in government laws or policies affect business risks?

  Change in government laws or policies can introduce new risks or change existing ones.
• Why is preparation and planning important for businesses regarding external factors?

  Preparation and planning for these changes can help businesses remain adaptable and resilient.
• What is an exchange rate?

  An exchange rate is the rate at which one currency can be exchanged for another.
• How are exchange rates determined?

  Exchange rates are determined in foreign exchange markets and fluctuate regularly due to economic and political factors.
• What impact do exchange rates have on businesses?

  Exchange rates affect the costs of importing and exporting goods and services, influencing sales, costs, profits, and strategy.
• What are the implications of strong and weak exchange rates for businesses?

  • Strong exchange rates:
  • Make imports cheaper
  • Make exports more expensive
  • Benefit businesses that import raw materials
  • Negatively impact businesses that rely on exports
  • Weak exchange rates:
  • Make exports cheaper
  • Make imports more expensive
  • Help businesses that export goods
  • Increase costs for businesses that import
• How do high exchange rates affect inflation?

  High exchange rates could lead to lower inflation as imported goods become cheaper.
• What is the effect of low exchange rates on inflation?

  Low exchange rates could cause inflation to rise as imported goods become more expensive.
• Why must businesses monitor changes in exchange rates?

  • To incorporate exchange rates into their strategic planning process
  • To allow for better financial planning
  • To make more informed decision-making
• What risks do unexpected fluctuations in exchange rates pose to businesses?

  Unexpected fluctuations in exchange rates can pose significant risk, particularly to businesses engaged heavily in foreign trade.
• How can businesses manage the risks associated with exchange rate fluctuations?

  Businesses can manage this risk through various hedging strategies.
• How do exchange rate fluctuations affect pricing strategies in businesses?

  • Businesses may need to adjust pricing strategies frequently
  • This adjustment can have a ripple impact on all facets and departments of the enterprise
• How can changes in exchange rates affect a business's competitive positioning?

  Changes in exchange rates can affect a business’s competitive positioning by making its products more expensive for foreign customers if the domestic currency strengthens.
• What are the social and ethical implications of exchange rates?

  • A rise in domestic currency value may increase export costs, negatively impacting employment in export-focused sectors
  • Currency depreciation could lead to increased costs for imported goods, affecting households’ cost of living
  • Responsible businesses must manage these implications in their operations and strategies
• What does globalisation refer to?

  The increasing interconnectedness and integration of countries through the exchange of goods, services, information, and ideas.
• What factors have contributed to globalisation?

  Advancements in technology, reduced transportation costs, and liberalised trade regulations.
• How does globalisation impact market size for businesses?

  It allows businesses to sell their products or services to customers around the world, providing a larger customer base.
• What advantage does globalisation provide in terms of resource access?

  Companies can source materials from countries where they are plentiful or cheaper, improving efficiency and reducing production costs.
• What is a consequence of increased competition due to globalisation?

  Businesses can face competitors not only from their home country but from foreign companies as well.
• What are offshoring and outsourcing in the context of globalisation?

  Offshoring is relocating production facilities to other countries, while outsourcing is contracting out certain business functions.
• What are the opportunities presented by globalisation for businesses?

  • Business expansion into new markets
  • Lower production costs through cheaper resources
  • Diverse product portfolio inspired by international exposure
  • Increased brand recognition on a global scale