CIPS Global Commercial Strategy - L6M2

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CIPS L6M2 Exam Overview:

CIPS L6M2 Exam Syllabus Topics:

Frequently Asked Questions: CIPS Global Commercial Strategy

CIPS Global Commercial Strategy Sample Questions:

Question 1

SIMULATION
Why is it important for an organisation to measure performance? Describe one tool that can be used to measure performance

Question 2

SIMULATION
XYZ is a toilet paper manufacturer based in the UK. It has 2 large factories employing over 500 staff and a complex supply chain sourcing paper from different forests around the world. XYZ is making some strategic changes to the way it operates including changes to staffing structure and introducing more automation. Discuss 4 causes of resistance to change that staff at XYZ may experience and examine how the CEO of XYZ can successfully manage this resistance to change

Question 3

SIMULATION
Explain 5 reasons why exchange rates can be volatile
Five Reasons Why Exchange Rates Can Be Volatile
Introduction
Exchange rates are constantly fluctuating due to economic, political, and market forces. Volatility in exchange rates affects global trade, procurement costs, and business profitability. Companies engaged in international supply chains or global expansion must understand the factors that drive currency fluctuations to manage risks effectively.
This answer explores five key reasons why exchange rates experience volatility.
1. Interest Rate Differentials (Monetary Policy Impact)
Explanation:
Central banks set interest rates to control inflation and economic growth. Countries with higher interest rates attract foreign investment, increasing demand for their currency.
✅ How It Causes Volatility?
Rising interest rates → Attracts foreign investors → Currency appreciates Falling interest rates → Reduces investment appeal → Currency depreciates Example: When the US Federal Reserve raises interest rates, the US dollar strengthens as investors move capital to USD-based assets.
Key Takeaway: Exchange rates fluctuate as investors adjust capital flows based on interest rate expectations.
2. Inflation Rates (Purchasing Power Impact)
Explanation:
Inflation reduces the value of money, leading to lower purchasing power. Countries with high inflation tend to see their currency weaken, while those with low inflation maintain a stronger currency.
✅ How It Causes Volatility?
High inflation → Reduces confidence in currency → Depreciation
Low inflation → Increases currency stability → Appreciation
Example: The Turkish Lira has depreciated significantly due to high inflation rates, making imports expensive.
Key Takeaway: Inflation affects the real value of money, influencing exchange rate stability.
3. Speculation and Market Sentiment (Investor Behavior Impact)
Explanation:
Foreign exchange markets (Forex) are driven by investor speculation. Traders buy and sell currencies based on market trends, geopolitical risks, and economic forecasts.
✅ How It Causes Volatility?
If investors expect a currency to strengthen, they buy more → Increases demand and value If investors lose confidence, they sell off holdings → Causes depreciation Example: In 2016, after the Brexit referendum, speculation about the UK economy caused the British pound (GBP) to drop sharply.
Key Takeaway: Investor behavior and speculation create short-term exchange rate volatility.
4. Political Instability & Economic Uncertainty (Government Policies & Geopolitics) Explanation:
Political uncertainty and economic instability weaken investor confidence, leading to capital flight from riskier currencies. Countries with stable governments and strong economies maintain more stable exchange rates.
✅ How It Causes Volatility?
Political crises, elections, or policy changes → Uncertainty → Currency depreciation Stable governance and economic reforms → Confidence → Currency appreciation Example:
Argentina's peso lost value due to economic instability and high debt.
Switzerland's Swiss Franc (CHF) remains strong due to political stability and its reputation as a "safe-haven" currency.
Key Takeaway: Political and economic uncertainty increase exchange rate volatility by influencing investor confidence.
5. Trade Balances & Current Account Deficits 🌎 (Export-Import Impact)
Explanation:
The balance of trade (exports vs. imports) impacts currency demand. Countries that export more than they import experience higher demand for their currency, leading to appreciation. Conversely, nations with large trade deficits see their currencies depreciate.
✅ How It Causes Volatility
Trade surplus (more exports) → Demand for local currency rises → Appreciation Trade deficit (more imports) → Increased need for foreign currency → Depreciation Example:
China's trade surplus strengthens the Chinese Yuan (CNY).
The US dollar fluctuates based on its import-export trade balance.
Key Takeaway: Exchange rates shift as global trade patterns change, affecting currency demand.
Conclusion
Exchange rate volatility is driven by economic, financial, and political factors:
1️⃣ Interest Rates - Higher rates attract investment, strengthening currency.
2️⃣ Inflation Rates - High inflation erodes value, weakening currency.
3️⃣ Speculation & Market Sentiment - Investor behavior influences short-term fluctuations.
4️⃣ Political & Economic Uncertainty - Instability causes capital flight and depreciation.
5️⃣ Trade Balances & Deficits - Export-driven economies see appreciation, while import-heavy nations experience depreciation.
Understanding these drivers helps businesses manage currency risks when engaging in global procurement, contracts, and financial planning.

Question 4

SIMULATION
Evaluate the following types of business structures: simple, functional, multi-divisional and matrix, explaining the advantages and disadvantages of each.

Solutions: