Mark Scheme

Section A — Structured Questions

1. (a) (up to 2) Exporting = selling goods or services to customers in other countries (abroad). [2] (b) (2) Any two: number of employees; sales revenue/turnover; profit; value of capital/assets; market share. 1 each. [2] (c) (up to 4) Two benefits: access to a larger market / more customers (more sales potential); spreading risk (not relying on one country's economy); greater sales/economies of scale; extending a product's life. 1 + 1 development each. [4]

2. (a) (up to 2) A brand = a name, logo, design or identity that distinguishes a business's products from competitors' and that customers recognise. [2] (b) (up to 4) Two factors: costs (price must cover costs and allow profit); competitors' prices in that market; customers' incomes / what they will pay in that country; exchange rates; the brand's positioning (premium vs budget). 1 + 1 development each. [4] (c) (up to 6) Market research explained and applied: primary (surveys/interviews in the target country) to test demand, tastes and acceptable prices; secondary (market/competitor reports, trade data) to judge market size and competition; results reduce risk by showing whether there is enough demand and what the product/price should be before committing money. 6 = clear types applied to entering an export market with the risk-reduction benefit; 3–4 = some application; 1–2 = general. [6]

3. (a) (up to 2) Advantage — provides the large sum needed now to expand, repaid over time; Disadvantage — must pay interest and repay even if sales fall, increasing risk. 1 each. [2] (b) (up to 4) A fall in the home currency against the dollar makes the imported cotton more expensive (each dollar costs more home currency), raising her costs (2); effect on exports — her goods become cheaper for overseas buyers, which could increase export sales/competitiveness (2). [4] (c) (up to 6) Two ways developed: negotiate cheaper/bulk supplies or find alternative suppliers; improve efficiency/productivity (reduce waste, better machinery); reduce energy/overhead costs; review staffing. 3 each (method + how it lowers costs — but note trade-offs, e.g. quality). [6]

4. (a) (up to 2) Any two: pay/bonuses; praise/recognition; training and promotion opportunities; good working conditions; job variety/responsibility. 1 each. [2] (b) (up to 4) Two factors: the cost of extra wages vs the extra revenue expected; whether demand is high/steady enough to justify permanent staff; availability of skilled workers; training needs; space/capacity. 1 + 1 development each. [4] (c) (up to 6) How to maintain quality: quality control/inspection, staff training, clear standards, good supplier quality, customer feedback (up to 3); why quality matters when exporting: protects reputation/brand in new markets, meets overseas regulations/expectations, encourages repeat orders, and helps compete against cheaper rivals on something other than price (up to 3). [6]

Section B — Extended Response

5. (16 marks) Levels-marked, must reach a supported judgement using both benefits and risks and the case study.

• Benefits of expanding: meets growing export demand (40% of sales and rising); more capacity and sales/revenue; economies of scale could lower unit costs; creates 20 jobs; strengthens position against competitors.
• Risks: needs a large bank loan (interest, repayment even if demand falls); exposure to exchange-rate movements (a falling home currency raises imported cotton costs); rising competition from cheaper overseas producers could undercut her; risk of over-expanding if export demand is not sustained; managing 80 workers.
• Judgement: a supported view weighing rising demand and economies of scale against the loan, currency and competition risks — e.g. expand but perhaps in stages, or only after confirming demand and hedging currency risk.
• Level 4 (13–16): balanced analysis of benefits and risks with a well-justified conclusion using the case study; Level 3 (9–12): both sides with some analysis and a judgement; Level 2 (5–8): limited/one-sided; Level 1 (1–4): basic.

Sample Answers with Examiner Commentary

Question 3(b) — Sample Answers

Grade A response. "When Amara's home currency falls in value against the US dollar, each dollar now costs her more of her home currency. Because she buys most of her raw cotton in US dollars, this means her imported cotton becomes more expensive, which raises her production costs and could squeeze her profit margins. However, the fall in the currency also has an effect on her exports: her fabrics and clothing become cheaper for overseas buyers, because their money now buys more of her home currency. This could make her products more competitive abroad and increase her export sales, which is important given that exports already make up 40% of her sales."

Mark: 4/4. Examiner commentary: A full-mark answer that correctly works through both effects of a currency depreciation. The candidate explains clearly why imported cotton becomes more expensive (each dollar costs more home currency) and links this to higher production costs, then correctly identifies the offsetting benefit for exports (her goods become cheaper for foreign buyers, boosting competitiveness). Applying the point to the case study — the 40% export share — and reasoning through the mechanism rather than just asserting it is exactly what secures the marks.

Grade C response. "If the currency falls the cotton will cost more money because she buys it in dollars. Her exports might sell better because they are cheaper for other countries."

Mark: 3/4. Examiner commentary: The candidate correctly states both effects — dearer imported cotton and cheaper, more attractive exports — which shows sound understanding and earns three marks. What holds it back from full marks is the lack of explanation of why: that a weaker home currency means each dollar costs more home currency (raising the cotton bill), and that foreign buyers' money now buys more of her currency (making her goods cheaper abroad). Adding that reasoning to at least one side would gain the final mark.

Question 5 — Sample Answers

Grade A response (extract). "There are strong arguments for Amara expanding the factory. Export demand is clearly growing — exports already make up 40% of her sales — so expanding capacity would let her meet that demand and increase revenue, and producing on a larger scale could bring economies of scale that lower her cost per unit. Expansion would also create 20 jobs and help her keep up with rivals.

However, the risks are significant. The expansion needs a large bank loan, which means interest payments and the obligation to repay even if demand falls. Amara is also exposed to exchange-rate risk: because she imports cotton in US dollars, a fall in her home currency raises her costs, which could be dangerous if she has also taken on a big loan. On top of this, she faces growing competition from cheaper overseas producers, who could undercut her prices and leave her with spare capacity.

Overall, I think Amara should expand, but cautiously. Because export demand is genuinely rising, the opportunity is real, but the combination of a large loan, currency risk and stronger competition makes a full, immediate expansion risky. I would advise her to expand in stages — increasing capacity gradually as export orders are confirmed — and to focus on quality and branding so she competes on more than price. This way she captures the growth while limiting the risk if demand or the exchange rate turns against her."

Mark: 15/16. Examiner commentary: A Level 4 answer. It analyses the benefits (rising export demand, economies of scale, jobs) and the risks (the loan, exchange-rate exposure, competition) in a genuinely balanced way, using specific evidence from the case study (the 40% export share, the dollar-priced cotton, the cheaper overseas rivals). The conclusion is evaluative and practical — recommending phased expansion and a focus on quality to manage the very risks identified — which shows sophisticated, applied judgement and secures a mark high in the top band.