Evaluate the impact on CD of the appreciation of country K's exchange rate.

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2024). The mark or mark type is shown in brackets.

1. A01 Knowledge and understanding: Exchange rate measures the value of one currency in terms of another.
2. A01 Knowledge and understanding: Appreciation means the value of a currency has increased in terms of another i.e. it buys more of another currency than previously.
3. A01 Knowledge and understanding: Makes imports cheaper but exports more expensive.
4. AO2 Application: Chemicals are currently produced in country K.
5. AO2 Application: Chemicals could be imported more cheaply.
6. AO2 Application: Increase in price of CD exports to country C.
7. AO2 Application: CD's plans for expansion.
8. AO2 Application: Cost push inflation in country K – including energy costs and raw materials.
9. AO2 Application: Environmental responsibility of CD.
10. AO3 Analysis: Appreciation could enable CD to import chemicals at a lower cost and thus reduce cost pressures to increase the selling price. This could prevent a reduction in sales in country K.
11. AO3 Analysis: CD's products will be a higher price in export markets such as country C therefore reducing sales.
12. AO3 Analysis: Appreciation of country K's currency will reduce the cost of CD's plans to expand operations abroad.
13. AO3 Analysis: Appreciation could increase the price competition from MNC products produced outside of country K, reducing the sales of CD.
14. AO4 Evaluation: Depends how much country K's currency appreciates and for how long.
15. AO4 Evaluation: Depends on PED.
16. AO4 Evaluation: As sustainability is important, CD may prefer to continue purchasing chemicals domestically rather than importing so appreciation won't bring any direct benefit.
17. AO4 Evaluation: Depends whether energy costs will be reduced by the appreciation – this could happen if oil and gas are imported to country K to generate electricity.