Which strategic approach most directly reduces exposure to commodity price swings?

• A. Maintaining a single export focus
• B. Diversifying the export base
• C. Increasing import duties
• D. Pegging currency to a commodity index

Answer: (B)

Spreading reliance across multiple exports reduces exposure to price swings in any single commodity. When income comes from several goods and markets, a drop in one commodity’s price is offset by stability or gains in others, smoothing overall revenue and making planning more predictable. This diversification lowers the vulnerability that comes from depending on just one commodity.

Sticking to a single export keeps you highly exposed because all earnings hinge on that one commodity’s fortunes; a price slump can significantly drag total revenue.

Increasing import duties doesn’t directly hedge commodity price risk and can create trade distortions and costs for consumers and investors.

Pegging the currency to a commodity index ties the exchange rate to commodity price movements, which can transfer volatility rather than reduce it, and it isn’t a straightforward or reliable way to manage commodity revenue risk.

Diversifying the export base is the direct way to reduce exposure to commodity price swings.