1.5.6

External Influences

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Interest Rates

Interest rates are effectively the price of money. Interest is charged on any money that people borrow and this is paid to lenders.

Interest payments

Interest payments

  • When consumers or businesses borrow money, they usually pay back more than they borrowed. This extra amount is called the interest payment.
  • The interest rate is the percentage of the loan that is charged as the price for borrowing.
Saving vs borrowing

Saving vs borrowing

  • When people save money, they get paid interest by the bank.
  • Therefore, the higher the interest rate, the more expensive it is to borrow money and the better it is to save money.
Impact on loans

Impact on loans

  • When interest rates are low, more companies will borrow money because it is cheaper to do so.
  • This is likely to lead to more investment and higher growth for businesses.
  • When interest rates are high, the opposite is true.
Impact on consumer spending

Impact on consumer spending

  • When interest rates are low, consumers are less likely to want to save because they get less money in return for saving.
  • This means that the demand for goods and services goes up as people spend more of the money they earn on goods and services.
  • When interest rates are high, people have more of an incentive to save money. But the interest rates on their mortgage payments also rise.

Businesses Face Constantly Changing Environments

Every business is affected by the external environment that it operates in. The business environment is characterised by:

Technological advancements

Technological advancements

  • Advances in technology can affect every aspect of a business. If there is a technological advancement in the capital used by a company, they may be able to produce the same products and services at a lower cost per unit.
    • In the industrial revolution (1780 - 1850), advances in technology reduced the cost of cotton cloth (used in your clothes) by 85%.
The economy

The economy

  • The economic situation describes how well the country and world’s overall economy is performing.
    • For example, in 2008 there was a financial crash which led an increase in unemployment in the UK and other countries. Because of this, the customers of most businesses began to spend less money. Customers had less money to spend on luxury products like Gucci handbags or expensive holidays.
Legislation

Legislation

  • Some industries are heavily impacted by laws (also known as pieces of legislation).
  • When legislation (the law) changes, businesses can be forced to change their practices.
  • For example, the UK government changed a law and forced cigarette companies to sell their products in plain packaging.
Environmental expectations

Environmental expectations

  • In today’s business environment, businesses have to change the way they operate to meet environmental expectations.
  • For example, in 2018, the supermarket Iceland promised not to use plastic packaging in their supermarkets by 2023.
  • Automotive (car and lorry) companies may be pressured to make electric vehicles instead of those that use petrol (or diesel) fuel.
Jump to other topics
1

Investigating Small Business

1.1

Enterprise & Entrepreneurship

1.1.1The Dynamic Nature of Businesses1.1.2Risk & Reward1.1.3The Role of Business Enterprise1.1.4The Role of Business Enterprise 21.1.5The Role of the Entrepreneur1.1.6End of Topic Test - Dynamic Nature of Business1.1.7Grade 9 - Dynamic Nature of Business
1.2

Spotting a Business Opportunity

1.2.1Customer Needs1.2.2Market Research1.2.3Market Segmentation1.2.4The Competitive Environment1.2.5Primary & Secondary Market Research1.2.6End of Topic Test - Business Opportunities1.2.7Application Questions - Business Opportunities1.2.8Exam-Style Questions - Market Segmentation1.2.9Diagnostic Misconceptions - Competition
1.3

Putting a Business Idea into Practice

1.3.1Business Aims1.3.2Business Objectives1.3.3Business Revenues & Costs1.3.4Costs - Calculations1.3.5Revenue - Calculations1.3.6Business Profits & Break-Even Analysis1.3.7Profits & Losses - Calculations1.3.8Interest - Calculations1.3.9Cash & Cash Flow1.3.10Cash & Cash Flow 21.3.11Cash Flow - Calculations1.3.12Sources of Business Finance1.3.13End of Topic Test - Business in Practice1.3.14Grade 9 - Business in Practice1.3.15Exam-Style Questions - Business in Practice1.3.16Diagnostic Misconceptions - Profit1.3.17Diagnostic Misconceptions - Company vs Business1.3.18Diagnostic Misconceptions - Economies of Scale1.3.19Diagnostic Misconceptions - Cash Flow1.3.20Diagnostic Misconceptions - Break-even1.3.21Diagnostic Misconceptions - Fixed Costs
1.4

Making the Business Effective

1.4.1The Options for Start-Up & Small Businesses1.4.2Limited Liability1.4.3Franchising & Not-For-Profits1.4.4Business Location1.4.5The Marketing Mix1.4.6Business Plans1.4.7End of Topic Test - Effective Business1.4.8Application Questions - Effective Business1.4.9Exam-Style Questions - Business Plans
1.5

Business Stakeholders

1.5.1Business Stakeholders1.5.2Technology & Business1.5.3Legislation & Business1.5.4Legislation & Business 21.5.5The Economy & Business1.5.6External Influences1.5.7End of Topic Test - Business Stakeholders1.5.8Grade 9 - Business Stakeholders1.5.9Diagnostic Misconceptions - Recessions
2

Building a Business

2.1

Growing the Business

2.1.1Business Growth2.1.2Finance2.1.3Changes in Business Aims & Globalisation2.1.4Ethics & Business2.1.5The Environment & Business2.1.6End of Topic Test - Growing a Business2.1.7Application Questions - Growing a Business2.1.8Exam-Style Questions - Business Growth
2.2

Making Marketing Decisions

2.2.1Product2.2.2Product Life Cycle2.2.3Price2.2.4Pricing Methods2.2.5End of Topic Test - Product & Price2.2.6Grade 9 - Product & Price2.2.7Promotion & Advertising2.2.8PR & Sales Promotions2.2.9Sponsorship & Product Placement2.2.10Promotional Mix2.2.11End of Topic Test - Promotion2.2.12Application Questions - Promotion2.2.13Exam-Style Questions - Promotional Mix2.2.14Place & Wholesalers2.2.15Direct to Consumer2.2.16E-commerce & M-commerce2.2.17Diagnostic Misconceptions - Decreasing Price2.2.18Diagnostic Misconceptions - Advertise vs Promote2.2.19Diagnostic Misconceptions - Social Media
2.3

Making Operational Decisions

2.3.1Job Production2.3.2Batch & Flow Production2.3.3Working with Suppliers2.3.4Effective Supply Chains2.3.5Just In Time & Just In Case2.3.6Managing Quality2.3.7Total Quality Management2.3.8The Sales Process2.3.9End of Topic Test - Operational Decisions2.3.10Grade 9 - Operational Decisions2.3.11Exam-Style Questions - Managing Stock2.3.12Diagnostic Misconceptions - JIT vs JIC
2.4

Making Financial Decisions

2.4.1Gross Profit & Net Profit - Definitions2.4.2Gross Profit - Calculations2.4.3Net Profit - Calculations2.4.4Rate of Return2.4.5Rate of Return - Calculations2.4.6Research & Financial Data2.4.7Marketing Data2.4.8Percentage Change - Calculations
2.5

Making Human Resource Decisions

2.5.1Organisational Structures2.5.2Organisational Structures 22.5.3Recruitment2.5.4Effective Recruitment2.5.5Training a Workforce2.5.6Motivating a Workforce2.5.7End of Topic Tests - Human Resources2.5.8Application Questions - Human Resources2.5.9Exam-Style Questions - Human Resources2.5.10Diagnostic Misconceptions - Owners vs Shareholders2.5.11Diagnostic Misconceptions - Internal Recruitment2.5.12Diagnostic Misconceptions - Employee Motivation

Practice questions on External Influences

Can you answer these? Test yourself with free interactive practice on Seneca — used by over 10 million students.

  1. 1
    Which of the following is true when interest rates are low?True / false
  2. 2
    What is an interest rate?Multiple choice
  3. 3
    How much money do businesses normally pay back when they loan money with a 1% interest rate?Multiple choice
  4. 4
    What is the business environment characterised by?Fill in the list
  5. 5
    The supermarket Iceland promised not to use plastic packaging in their supermarkets by 2023. What has this business been influenced by?Multiple choice
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The Economy & Business

End of Topic Test - Business Stakeholders