Evaluate the likely impact on KTJ of fluctuations in the exchange rate of country B's currency.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2025). The mark or mark type is shown in brackets.

1. [1] Definition of Exchange rate: price of one currency in terms of another.
2. [1] Explanation of fluctuation in exchange rate: depreciation – a decrease in the price of a currency in terms of another.
3. [1] Explanation of fluctuation in exchange rate: appreciation – an increase in the price of a currency in terms of another.
4. [1] Impact of ER fluctuations: increases uncertainty making decision making more difficult for KTJ.
5. [1] Impact of depreciation: Beneficial for exporting.
6. [1] Impact of depreciation: Imports more expensive.
7. [1] Impact of depreciation: Imported goods in country B may be less price competitive following depreciation.
8. [1] Application: KTJ exports to US and other countries.
9. [1] Application: KTJ imports fruits from West Africa.
10. [1] Application: Investment in country C or D.
11. [1] Application: Depreciation makes exports cheaper to US, increasing competitiveness.
12. [1] Application: Importing fruit becomes more expensive.
13. [1] Application: Margin squeeze despite higher export volume.
14. [1] Application: Impact on ARR for C/D investment.
15. [1] Application: Movements influence pricing strategy and profitability.
16. [1] Analysis: Depreciation will reduce the price of KTJ juices in international markets such as the US resulting in greater price competitiveness.
17. [2] Analysis: Depreciation will reduce the price of KTJ juices in international markets such as the US resulting in greater price competitiveness and this will increase sales and market share of KTJ.
18. [1] Analysis: The cost of investing in country C or D will increase which will reduce the ARR of the investment.
19. [2] Analysis: The cost of investing in country C or D will increase which will reduce the ARR of the investment and may result in a delay to opening a new factory.
20. [1] Analysis: As KTJ imports fruit from West Africa its price will increase and therefore KTJ's variable costs will increase.
21. [2] Analysis: As KTJ imports fruit from West Africa its price will increase and therefore KTJ's variable costs will increase resulting in a reduction in profit.
22. [1] Evaluation: Supported judgement as to overall impact of depreciation on KTJ.
23. [1] Evaluation: KTJ likely to benefit as although imported fruit costs rise this is only a part of KTJ's costs of production so should still be more price competitive when KTJ exports the final product.
24. [1] Evaluation: Inflationary impact of depreciation on the economy as a whole.
25. [1] Evaluation: Net impact depends on the balance between export revenue gains and import cost increases.
26. [1] Evaluation: Short-term depreciation may be beneficial but long-term volatility complicates planning.
27. [1] Evaluation: Factors that the impact might depend on: Extent to which customers are impacted by changes in price – PED.
28. [1] Evaluation: Factors that the impact might depend on: Whether the depreciation is long term.
29. [1] Evaluation: Factors that the impact might depend on: Effects may be mitigated if exports are invoiced in foreign currency or supply sources can be diversified.
30. [1] Evaluation: Factors that the impact might depend on: Hedging strategies can reduce risk from currency volatility.
31. [1] Evaluation: Factors that the impact might depend on: Pricing power in export markets affects KTJ's ability to pass on cost changes.