JEPPE HIGH SCHOOL FOR BOYS

GRADE 11 BUSINESS STUDIES CYCLE TEST 1

19 FEBRUARY 2013 1 HOUR

EXAMINER: MR D. JACKSON NO. OF PAGES: 4

MODERATOR: MR B. GITTINS

INSTRUCTIONS:1. The paper consists of three sections:

Section A: Short questionsSection B: Case Study and questionsSection C: Essay

2. Consider the time allocation for each question when answering the questions.3. Number the answers correctly according to the numbering system used in this

question paper.4. Except where other instructions are given, answers must be in full sentences.5. Begin the answer to each question on a NEW page.

SECTION A 20 MARKS

This section is compulsory. Answer the questions on the Answer sheet provided.

QUESTION 1.1 (5 X 2 = 10)

1.1.1 Which one of the following is a challenge in the MACRO environment.A Unskilled workersB Competition from other companiesC Lack of direction from managementD HIV/AIDS

1.1.2 State which of the following statements is FALSE.A The business has no control over the Macro EnvironmentB Contemporary legislation is a challenge of the Macro EnvironmentC Changes in consumer behaviour is a component of the Micro

EnvironmentD The Micro Environment is also known as the Internal Environment

1.1.3. If the Rand: Dollar exchange rate improves, this will have a ............impact on exporters.A NegativeB PositiveC NeutralD Impossible to tell

1.1.4 If demand exceeds supply in an economy, this will normally lead to a …………. in the rate of inflationA exchangeB increaseC decreaseD zero rated change

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1.1.5 People can trade internationally as a result of new technology such as websites, cellphones and social media. This is known as ........................

A UrbanisationB GlobalisationC Micro-lendingD Outsourcing

QUESTION 1.2 GENERAL VOCABULARY (5 X 2 = 10)

Choose the correct words and write it on the Answer sheet:Prime lending rate, Repo Rate, Inflation, Residual value, Par value, Merger, Exchange Rate, Action plan, Brokers, Intermediaries, Recession.

1.2.1 A list that organises the activities needed to achieve the goals set out in the business plan.

1.2.2 Sales intermediaries who do not have ownership of the product but negotiate markets where there are a few buyers or sellers.

1.2.3 The amount of interest the Commercial Banks charge the public on the money lent to them.

1.2.4 This rate indicates the increase in the price of consumer goods from one year to the next.

1.2.5 A period of economic decline where income tends to fall and poverty and unemployment levels increase.

SECTION B 40 MARKS

This section is compulsory. Answer all the questions.

QUESTION 2 BUSINESS ENVIRONMENTS 40 MARKS

AMPLATS is a subsidiary of Anglo American and one of the world’s largest platinum miners. They recently announced a record R6.3 billion financial loss which they blamed on strikes at their Marikana Mine in 2012 (which led to the death of 34 miners), uncertain political conditions in South Africa particularly around nationalisation, high inflation and the emergence of competitors in other countries, where platinum has recently been discovered in large quantities.

As a result, despite the weakening of the exchange rate in 2012, they made a huge loss and are currently reviewing various Social Responsibility programmes such as their funding of students on the Jeppe campus at Edumap.

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2.1 Name and explain the four challenges of the business environment that Amplats are experiencing as mentioned in the above article that led to their record loss. Include which environment the challenge belongs to. Use a table as per below: (8)

Business Challenge mentioned in the scenario

Business Environment

2.2 One method for Amplats to deal with challenges in the macro environment is for the business to get involved in the environment. Discuss three ways that Amplats could get involved in the macro environment (9)

2.3 Amplats senior management are meeting to discuss strategies that they can implement in their MICRO environment to return to profitability.Suggest FIVE such plans and strategies that senior management could implement. (10)

2.4 Why do you believe Amplats are investing in Edumap as a social responsibility programme (Hint: Names two benefits of SOCIAL RESPONSIBILITY to a business)? (4)

2.5 Amplats have heard that a big competitor is considering a hostile takeover for their business given their big losses. Explain what a hostile takeover is. (2)

2.6 In the above article, why does it say that “despite the weakening of the exchange rate in 2012 they made a huge loss”? Would a weak exchange rate typically benefit, or hamper, Amplats. Explain why? (5)

2.7 Define the term “nationalisation” (2)

SECTION C: ESSAYS 40 MARKS

MacMatt Toys is a toy store that opened in Jules Street, Malvern in 2008 and which sells toys and related products. Businesses in Jules Street cater to the middle to lower income target market because of the income profile of the customers and it has been a tough few years of trading for the owner, Mr Mackenzie, due to the recession and high interest rates.

Write an essay in which you discuss:

Challenges that Mr Mackenzie will have to face in the MACRO environment other than those mentioned above.

Suggest ways in which Mr Mackenzie can deal with these challenges to adapt and operate his business successfully.

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One of Mr Mackenzie’s employees recently disclosed to him that he is HIV+. Explain to Mr Mackenzie the impact of HIV/AIDS on his business and what he should be doing to mitigate this risk

OR

You have recently replaced Gill Marcus as governor of the Reserve Bank. Inflation has started to increase above the bank’s targeted range of 3 – 6% over the past year and Jacob Zuma has called you to a meeting to explain to him what should be done to control the inflation rate.

Discuss how you would control the inflation rate by using the repo rate. In your explanation, make use of the following headings:

An explanation of what the inflation rate and repo rate is How the inflation rate and repo rate are inter-related An explanation of supply and demand in the economy and how this affects

inflation and the repo rate

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MARKING MEMORANDUM

JEPPE HIGH SCHOOL FOR BOYS

GRADE 11 BUSINESS STUDIES CYCLE TEST 1

19 FEBRUARY 2013 1 HOUR

EXAMINER: MR D. JACKSON NO. OF PAGES: 4

MODERATOR: MR B. GITTINS

INSTRUCTIONS:1. The paper consists of three sections:

Section A: Short questionsSection B: Case Study and questionsSection C: Essay

2. Consider the time allocation for each question when answering the questions.3. Number the answers correctly according to the numbering system used in this

question paper.4. Except where other instructions are given, answers must be in full sentences.5. Begin the answer to each question on a NEW page.

SECTION A 20 MARKS

This section is compulsory. Answer the questions on the Answer sheet provided.

QUESTION 1.1 (5 X 2 = 10)

1.1.1 Which one of the following is a challenge in the MACRO environment.

A Unskilled workersB Competition from other companiesC Lack of direction from managementD HIV/AIDS

1.1.2 State which statement is FALSE.

A The business has no control over the Macro EnvironmentB Contemporary legislation is a challenge of the Macro EnvironmentC Changes in consumer behaviour is a component of the Micro

EnvironmentD The Micro Environment is also known as the Internal Environment

1.1.3. If the Rand: Dollar exchange rate improves, this will have a ............impact on exporters.

A NegativeB PositiveC NeutralD Impossible to tell

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1.1.4 If demand exceeds supply in an economy, this will normally lead to a …………. in the rate of inflationA exchangeB increaseC decreaseD zero rated change

1.1.5 People can trade internationally as a result of new technology such as websites, cellphones and social media. This is known as ........................

A UrbansisationB GlobalisationC Micro-lendingD Outsourcing

1.1.1 D√ √1.1.2 C√ √1.1.3 A√ √1.1.4 B√ √1.1.5 B√ √

QUESTION 1.2 GENERAL VOCABULARY (5 X 2 = 10)

Choose the correct words and write it on the Answer sheet:Prime lending rate, Repo Rate, Inflation, Residual value, Par value, Merger, Exchange Rate, Action plan, Brokers, Intermediaries, Recession.

1.2.1 A list that organises the activities needed to achieve the goals set out in the business plan.

1.2.2 Sales intermediaries who do not have ownership of the product but negotiate markets where there are a few buyers or sellers.

1.2.3 The amount of interest the Commercial Banks charge the public on the money lent to them.

1.2.4 The rate indicates the increase in the price of consumer goods from one year to the next.

1.2.5 A period of economic decline where income tends to fall and poverty and unemployment levels increase.

1.2.1 ACTION PLAN√ √1.2.2 BROKERS√ √1.2.3 PRIME LENDING RATE√ √1.2.4 INFLATION√ √1.2.5 RECESSION√ √

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SECTION B 40 MARKS

This section is compulsory. Answer all the questions.

QUESTION 2 BUSINESS ENVIRONMENTS 40 MARKS

AMPLATS is a subsidiary of Anglo American and one of the world’s largest platinum miners. They recently announced a record R6.3 billion financial loss which they blamed on strikes at their Marikana Mine in 2012 (which led to the death of 34 miners), uncertain political conditions in South Africa, particularly around nationalisation, high inflation and the emergence of competitors in the Russia, where platinum has recently been discovered in large quantities.

As a result, despite the weakening of the exchange rate in 2012, they made a huge loss and are currently reviewing various Social Responsibility programmes such as their funding of students on the Jeppe campus at Edumap.

2.1 Name and explain the four challenges of the business environment that Amplats are experiencing as mentioned in the above article that led to their record loss. Include which environment the challenge belongs to. Use a table as per below: (8)

Business Challenge mentioned in the scenario

Business Environment

Strikes / Labour unrest √ORUnhappy staff and poor internal culture√

Market Environment (Trade Unions) √

Micro Environment √Uncertain political conditions (i.e. nationalization) √

Macro Environment √

High inflation √ Macro Environment √Exchange rate variances √ Macro Environment √Emergence of Competitors in Russia √ORGlobalisation √

Market Environment √

Macro Environment √

2.2 One method for Amplats to deal with challenges in the macro environment is for the business to get involved in the environment. Discuss three ways that Amplats could get involved in the macro environment (9)

o Help fight HIV/AIDS by implementing an HIV/AIDS programme and policy including counselling employees, providing testing, paying for ARV medication, etc etc √√√

o Enter into a private-public partnership with government √√√

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o Adopt / initiate social responsibility programmes such as training of the local population, adult literacy classes, programmes to alleviate unemployment etc etc √√√

o Apply for various government tenders for the mining industry √√√o Expand into Africa, a continent in which mineral resources are

constantly being discovered and which has great potential for growth √√√

o Take the area in new technology or research and development such as new technologies for mining resources. √√√

2.3 Amplats senior management are meeting to discuss strategies that they can implement in their MICRO environment to return to profitability.Suggest FIVE such plans and strategies that senior management could implement. (10)

o Innovation – a long term strategy that involves R&D of a new product or service √√

o Concentration – Focus resources on a single product or in a single market √√

o Market Development – Develop existing markets more extensively or new markets are developed for existing products √√

o Rationalisation – The business reduces costs drastically as a result of a decline in profits √√

o Liquidation – When management decides to close down the entire business because it is not profitable √√

o Divestiture – Similar to rationalisation but here the business sells off one or more branches, or assets, of a business. √√

Any 5 of the above – one mark for naming the strategy and a second mark for an explanation thereof

2.4 Why do you believe Amplats are investing in Edumap as a social responsibility programmes (Hint: Names two benefits of SOCIAL RESPONSIBILITY to a business)? (4)

Any TWO of the following: o Improved public image and goodwill leading to increased profits √√o Enhanced BEE points which may assist with obtaining government

tenders or business √√o Buy in and support of the community, thereby leading to improved

profits √√o Address socio economic challenges (such as poverty) which lead to

reduced crime, unemployment and poverty and thus increased profits. √√

2.5 Amplats have heard that a big competitor is considering a hostile takeover for their business given their big losses. Explain what a hostile takeover is. (2)

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o Where one buys buys / acquires another business (√) against its will. (√)

2.6 In the above article, why does it say that “despite the weakening of the exchange rate in 2012 they made a huge loss”? Would a weak exchange rate typically benefit, or hamper, Amplats. Explain why? (5)

o A weak exchange rate would benefit (√) Amplats because: Amplats exports (√) the majority of its platinum and a weaker

exchange rate benefits exporters (√) The platinum price is also quoted in US $ (√√) and so as the

rand weakens against the US $, South African exporters benefit. In addition, Amplat’s cost base is in Rands as their operations

are in South Africa and thus their costs will remain rand based but their income will rise as the exchange rate weakens, leading to an increase in profit √√

2.7 Define the term “nationalisation” (2)

o To put an industry under state control or ownership. √√

SECTION C: ESSAYS 40 MARKS

MacMatt Toys is a toy store that has opened in Jules Street, Malvern in 2008 and which sells toys and related products. Businesses in Jules Street cater to the middle to lower income target market because of the income profile of the customers and it has been a tough few years of trading for the owner, Mr Mackenzie, due to the recession and high interest rates.

Write an essay in which you discuss:

Challenges that Mr Mackenzie will have to face in the MACRO environment other than those mentioned above.

Suggest ways in which Mr Mackenzie can deal with these challenges to adapt and operate his business successfully.

One of Mr Mackenzie’s employees recently disclosed to him that he is HIV+. Explain to Mr Mackenzie the impact of HIV/AIDS on his business and what he should be doing to mitigate this risk

Introduction

Businesses face challenges from the different environments such as the Micro, Market, and Macro.

The business can control its micro environment. The business has some control in the market environment. The business has no control in the macro environment and therefore needs to

devise strategies to enable it to respond to these challenges. Any relevant introduction relating to business environments.

Body:

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Challenges in the Macro Environment and ways to deal with these challenges

MACRO ENVIRONMENT

1. Economic:

Increase in interest rates. Recession

Cut overhead costs and eliminate the need to borrow.

Increase production in order to increase output.

Increase turnover by reducing prices and thereby capturing a greater market share.

Stock items for the lower end of the market so that when consumers “purchase down”, they will come to his shop

2. Social:

Unemployment - People are unemployed and thus do not have spending power to buy items from his shop

HIV/AIDS - Both workers and potential customers may be affected by HIV/AIDS which will affect productivity (workers) and also potentially buying power (customers) who need to spend money on medicines, etc

Lack of skills of workers due to poor education

Poverty Crime - people may be afraid to

come to his shop due to crime

Invest is CSI initiatives to increase employment in the area

Consider moving premises to a more affluent area

Approach Jeppe High School for Boys / Girls to try and employ well educated staff from these schools

Diversify product range to cater for low income market

Diversify product range to sell more than just toys

Increase security at the shop Sell toys at flea markets in “safer”

areas in the north e.g. Bryanston Flea market

3. Technological

Internet sales of toys could reduce his sales

Mass produced machine tools could reduce sales if he sells handmade once-off items

Try and develop a website to sell toys online

Consider buying machines, or developing a relationship with a supplier, who manufactures mass produced toys at cheap prices

4. Globalisation

Global toy stores (Toys R Us) may come into his market and take away customers

Source toys from cheap manufacturing locations such as China to reduce costs

5. Legislation: Changes in labour legislation enforced by government (e.g. a minimum wage, similar to the developments in the Agricultural industry recently experienced)

Invite officials of trade unions to address employees on benefits of belonging to trade unions.

Know the Labour Relations Act and other legislation such as the Basic Conditions of Employment Act

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Conclusion

Every business faces challenges and it is up to the entrepreneur to overcome these challenges

An entrepreneur needs to be innovative and passionate and to always work hard in order to maximise his chances of success

Any other relevant answer

OR

You have recently replaced Gill Marcus as governor of the Reserve Bank. Inflation has started to increase above the bank’s targeted range of 3 – 6% over the past year and Jacob Zuma has called you to a meeting to explain to him what should be done to control the inflation rate.

Discuss how you would control the inflation rate by using the repo rate. In your explanation, make use of the following headings:

An explanation of what the inflation rate and repo rate is How the inflation rate and repo rate are inter-related An explanation of supply and demand in the economy and how this affects

inflation and the repo rate

Introduction

Monetary Policy refers to the attempt of government to control the inflation rate.

The inflation rate is part of the economic factors in the external environment. Whilst businesses have no control over the external environment, they need

to understand the factors existing therein as they have a significant impact on businesses

Understanding the causes of inflation, and the impact on the business, will allow management to adjust their strategies.

[Any 3 points or similar]

Body

An explanation of the inflation rate and repo rate

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The inflation rate is the increase in the price of consumer goods from one year to the next.

Inflation reduces the purchasing power of individuals and businesses and lowers the standard of living if wage increases are not keeping up with the rate of inflation.

The Repo Rate is the amount of interest the Reserve Bank charges commercial banks (such as Standard Bank, ABSA, Bank, Nedbank, FNB, etc) on the money lent to them.

The Commercial Banks, in turn, base their prime rate of lending on the Repo Rate

The Prime Rate is the base rate at which Commercial Banks lend to members of the public.

The report rate and prime rate thus have a directly proportional relationship

[Max of 10 marks]

How the inflation rate and repo rate are inter-related

In monetary policy, the repo rate is used as a tool to attempt to control the rate of inflation.

Simplistically, when inflation increases, the repo rate is increased in order to reduce demand and thus reduce inflation, as explained below.

Changes to the repo rate have a huge impact on both the consumer and business.

Many economists and organisations (e.g. COSATU) disagree with monetary policy and believe that there are alternative methods to control inflation without hurting the consumer.

[Max of 8 marks]

An explanation of Supply and Demand

If demand increases but supply remains the same, then goods will become more expensive.

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o This is represented in the above graph by “D2” If supply increases, but demand remains the same, then goods will cost less. In the economy, when there is an increase in demand (due, for example, to

high wage increases) which is not matched by an increase in supply (because production levels do not increase), this will lead to an increase in the price of goods and services.

This in turn leads to an increase in inflation and a lowering of the standard of living, particularly for the unemployed.

In order to reduce inflation, government increases the repo rate which results in an increase in the prime rate and thus increases the cost of borrowing to consumers and businesses.

This leads to a reduction in demand as consumers have less disposable income as a result of higher costs of borrowing and the effect on bond repayments, car repayments, etc.

Demand reduces and thus inflation reduces. In this way, governments control inflation by using the repo rate.

[Max of 14 Marks]

Conclusion

The repo rate is not the only method to control inflation. It is however the method currently favoured by the South African Government

via its Monetary Policy Committee chaired by Gill Marcus, the governor of the Reserve Bank.

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