CIE IGCSE NOTES
6.0 International Trade and Globalisation
Practice
True / False - Current Account of Balance of Payments
20 questionsQuestion 1 of 20
Remittances sent home by workers abroad are recorded in the secondary income section of the current account.
Workers sending money back to family in their home country are making income transfers — these cross-border financial gifts are secondary income flows.
Question 2 of 20
Raising interest rates to reduce a deficit may conflict with the goal of promoting economic growth.
Higher interest rates reduce borrowing and investment — slowing economic growth. This creates a conflict between the BoP stability objective and the growth objective.
Question 3 of 20
Trade in goods is also known as the visible balance.
Because physical goods can be seen and counted at the border, trade in goods is called the visible balance — distinguishing it from the invisible balance of services.
Question 4 of 20
Supply-side policies that raise productivity can improve the current account without causing the unemployment that contractionary demand policies might create.
Unlike austerity, supply-side improvements raise competitiveness and output — improving the current account while potentially also creating jobs, avoiding the unemployment trade-off.
Question 5 of 20
A country exporting more services than it imports has a surplus on the trade in services account.
When service exports (tourism, finance, insurance sold abroad) exceed service imports (foreign services used domestically), the trade in services account is in surplus.
Question 6 of 20
Investment in infrastructure by the government is a supply-side policy that supports export businesses.
Better roads, ports, broadband, and energy networks reduce firms' costs and improve their ability to produce and export goods efficiently.
Question 7 of 20
Trade in goods records the exports and imports of physical goods.
Physical goods — cars, food, machinery, clothing — are tangible products that can be seen crossing borders. Their export and import is recorded in the trade in goods account.
Question 8 of 20
Fiscal policy can be used to reduce a current account deficit by raising taxes and cutting government spending.
Higher taxes and reduced government spending lower household incomes — reducing consumer spending including on imports, which helps reduce the deficit.
Question 9 of 20
A country that receives more investment income from abroad than it pays out has a primary income surplus.
If returns on overseas investments (dividends, interest) received by residents exceed what is paid to foreign investors in the country, there is a primary income surplus.
Question 10 of 20
A country cannot use both fiscal policy and monetary policy at the same time to address a current account deficit.
Governments regularly use multiple policy tools simultaneously — higher taxes (fiscal) and higher interest rates (monetary) can both be deployed together to reduce import demand.
Question 11 of 20
An increase in domestic income tends to increase the demand for imports, contributing to a current account deficit.
When incomes rise, consumers spend more — including on imported goods. Higher import spending increases the current account deficit.
Question 12 of 20
A current account surplus contributes to higher living standards through increased income and employment.
Export-led growth increases national income, creates jobs, and raises wages — all of which improve living standards for the population.
Question 13 of 20
A tourist visiting from abroad spending money in a country counts as a service export for that country.
Tourism is a service export — the foreign tourist 'imports' the tourism service from the host country, bringing foreign currency in and improving the host's trade in services.
Question 14 of 20
Reduced demand for imports contributes to a current account surplus.
When domestic residents buy fewer foreign goods and services, import spending falls — if export earnings remain stable, this reduces or eliminates the deficit, creating a surplus.
Question 15 of 20
A current account surplus can create inflationary pressure in the domestic economy.
A surplus injects money into the economy (export revenues) while domestic supply may not keep pace — increased demand relative to supply pushes prices up.
Question 16 of 20
A current account surplus can be caused by a country specialising in high-demand goods that the rest of the world wants to buy.
Comparative advantage in producing globally demanded goods — e.g. Germany's engineering, or Saudi Arabia's oil — drives export demand and supports a current account surplus.
Question 17 of 20
A current account surplus benefits domestic workers in export industries through higher employment and wages.
Strong export demand means export firms hire more workers and can afford to pay higher wages — directly improving the welfare of workers in those sectors.
Question 18 of 20
Inflationary pressure is a potential negative consequence of a current account surplus.
The extra income flowing in from exports boosts aggregate demand — if supply cannot keep up, this demand-pull effect raises the price level.
Question 19 of 20
The balance of payments must always balance overall.
In theory, the current account deficit is financed by a surplus on the capital and financial account (e.g. borrowing or selling assets) — so the overall BoP nets to zero.
Question 20 of 20
A country's balance of payments can tell us about its trading relationships and financial position with the world.
The BoP reveals whether a country is earning more from exports than it spends on imports, and whether it is a net lender or borrower internationally.
Practice
True / False - Foreign Exchange Rates
20 questionsQuestion 1 of 20
An increase in the supply of a currency in the forex market will cause its exchange rate to fall.
Greater supply of a currency (more of it available) pushes its price down — the currency depreciates as supply exceeds demand at the old rate.
Question 2 of 20
A floating exchange rate is one that is determined freely by market demand and supply conditions.
In a floating system, the central bank does not intervene — the exchange rate adjusts automatically to reflect changes in demand and supply of the currency.
Question 3 of 20
A floating exchange rate makes it difficult for businesses to predict future costs and revenues from international trade.
When the exchange rate is unpredictable, firms cannot be certain what they will receive for exports or pay for imports — increasing financial risk.
Question 4 of 20
A floating exchange rate requires the central bank to hold large foreign exchange reserves.
Foreign reserves are needed to defend a fixed exchange rate. Under floating rates, no reserves are needed because the rate adjusts automatically.
Question 5 of 20
An increase in the demand for a currency will cause its exchange rate to rise, all else equal.
Higher demand for a currency pushes its price up — just as in any market, increased demand leads to a higher equilibrium price (exchange rate).
Question 6 of 20
Devaluation is a deliberate fall in the value of a fixed exchange rate.
Devaluation is a policy decision by the government to lower the fixed exchange rate — making exports cheaper and imports dearer to improve the current account.
Question 7 of 20
A country experiencing high inflation should devalue its currency to restore export competitiveness.
Devaluation temporarily boosts competitiveness but can worsen inflation (by raising import prices). The better solution is to address the underlying inflation through monetary or fiscal tightening.
Question 8 of 20
A country running a balance of payments surplus will tend to see its currency appreciate.
A surplus means the country receives more foreign currency than it spends — net demand for the domestic currency is positive, pushing its value up.
Question 9 of 20
Rising imports cause the domestic currency to weaken because residents must buy more foreign currency.
To pay for imports, residents sell domestic currency to buy foreign currency — increasing supply of the domestic currency and pushing its value down.
Question 10 of 20
An increase in imports has the same effect on the exchange rate as an increase in exports.
Imports increase the supply of domestic currency (residents buy foreign currency), weakening it. Exports increase demand for domestic currency (foreigners buy it), strengthening it. The effects are opposite.
Question 11 of 20
MNC activity has no effect on exchange rates.
MNCs moving capital between countries — for investment, profit repatriation, or purchasing — directly affects the demand and supply of currencies, influencing exchange rates.
Question 12 of 20
A fixed exchange rate is less flexible in responding to external economic shocks.
Since the rate cannot adjust, the economy must absorb shocks through internal adjustments (e.g. wage cuts, deflation) rather than through currency depreciation — a significant disadvantage.
Question 13 of 20
When a currency appreciates, the price of imports falls for domestic consumers.
A stronger currency means each unit of domestic currency buys more foreign currency — so imported goods become cheaper for domestic buyers.
Question 14 of 20
Inward Foreign Direct Investment (FDI) boosts demand for a country's currency and increases its value.
Foreign companies must convert their currency into the domestic currency to invest — this increases demand for the domestic currency, causing it to appreciate.
Question 15 of 20
Depreciation and devaluation mean exactly the same thing.
Depreciation is the automatic fall in a floating exchange rate due to market forces. Devaluation is a deliberate government decision to lower a fixed exchange rate — they are different concepts.
Question 16 of 20
If speculators lack confidence in an economy, they withdraw investments, causing the currency to fall.
Capital flight driven by loss of confidence reduces demand for the currency (as assets are sold) and increases its supply — causing depreciation.
Question 17 of 20
Automatic stabilisation is an advantage of a floating exchange rate.
If a country has a current account deficit, the currency depreciates automatically — making exports cheaper and imports dearer, restoring balance of payments equilibrium without government action.
Question 18 of 20
A currency appreciation always improves a country's current account balance.
Appreciation makes exports dearer and imports cheaper, which tends to worsen (not improve) the current account by reducing exports and increasing imports.
Question 19 of 20
Speculation is listed as a disadvantage of floating exchange rates because it can cause excessive volatility.
Hot money flows driven by speculation can cause exchange rates to overshoot their equilibrium values, creating harmful volatility unrelated to economic fundamentals.
Question 20 of 20
A currency depreciates when its value rises against other currencies.
Depreciation is a fall in the value of a currency — it now buys fewer units of another currency. A rise in value is called appreciation.
Practice
True / False - Globalisation, Free Trade and Protection
20 questionsQuestion 1 of 20
Apple, Exxon Mobil, Coca-Cola, Volkswagen, and Johnson & Johnson are examples of MNCs.
These globally recognised companies all operate across many countries, making them classic examples of multinational corporations.
Question 2 of 20
Expanding to countries with lower corporate tax rates benefits MNCs by reducing their tax burden.
Tax differentials between countries are a major incentive — MNCs route profits through low-tax jurisdictions to minimise their global tax liability.
Question 3 of 20
Retaliation by other countries is an argument against protectionism.
When one country imposes trade barriers, its trading partners often retaliate with their own barriers — leading to trade wars that harm all economies involved.
Question 4 of 20
A tariff is beneficial for domestic producers because it increases the cost of competing imports.
By making imports more expensive, tariffs allow domestic producers to charge higher prices and retain more market share than they would under free trade.
Question 5 of 20
Host countries always experience economic growth as a result of MNC investment.
While MNC investment typically stimulates growth, the net effect depends on whether profits are repatriated, whether local firms are crowded out, and whether workers' wages are fair.
Question 6 of 20
Preventing dumping is an argument against protectionism.
Preventing dumping is an argument FOR protectionism. Dumping (foreign firms selling below cost to dominate markets) is unfair — trade barriers protect domestic firms from this practice.
Question 7 of 20
Profit repatriation reduces the developmental impact of MNC investment on host countries.
When profits leave the host country, less of the income generated locally is retained for reinvestment — limiting the multiplier effect of MNC investment on the host economy.
Question 8 of 20
A lack of local knowledge may result in business failures for MNCs entering new markets.
Without understanding local consumer preferences, business practices, and cultural norms, MNCs risk misjudging the market and investing in unsuccessful products or strategies.
Question 9 of 20
MNCs always prefer to source all inputs from their home country to maintain quality control.
MNCs source globally — they choose suppliers based on cost, quality, and availability worldwide. Global sourcing is one of the key strategic advantages of being multinational.
Question 10 of 20
Honda manufactures cars in Belgium, Italy, and France to avoid EU trade restrictions.
By producing within the EU, Honda avoids paying tariffs on cars imported from Japan — a strategic use of foreign production to bypass trade barriers.
Question 11 of 20
Johnson & Johnson is an example of an MNC operating in healthcare.
J&J produces pharmaceuticals, medical devices, and consumer health products across multiple countries — one of the world's largest healthcare MNCs.
Question 12 of 20
Globalisation leads to greater consumer choice by restricting access to foreign goods.
Globalisation increases consumer choice by giving people access to a wider variety of goods and services from around the world — not restricting it.
Question 13 of 20
When a subsidy is given to domestic producers, the supply curve shifts to the left.
A subsidy lowers production costs, encouraging firms to produce more — the supply curve shifts rightward (from S1 to S2), increasing output and lowering prices.
Question 14 of 20
MNCs never face difficulties adapting their products to different cultural markets.
Cultural adaptation is one of the major challenges MNCs face — failure to adapt (as Tesco showed in the US) can result in costly market exits and damage to brand reputation.
Question 15 of 20
US tariffs on Chinese solar cells leading to China imposing tariffs on US chemicals is an example of retaliation.
This real-world example illustrates how protectionist measures can trigger retaliatory actions, escalating into a damaging trade war for both sides.
Question 16 of 20
Profits earned by MNCs in foreign countries are often repatriated to the home country.
Repatriation means sending profits back to the MNC's headquarters country — these inflows improve the home country's current account and benefit shareholders.
Question 17 of 20
Communication barriers due to language, cultural, and time zone differences are management challenges for MNCs.
Operating across many countries means teams speak different languages, follow different business norms, and work at different times — creating real coordination and communication difficulties.
Question 18 of 20
In Diagram B, local firms are shown as one of the stakeholders affected by MNC activity.
Diagram B includes 'local firms' as a spoke — MNCs affect domestic businesses through competition, supply chain relationships, and potential crowding-out.
Question 19 of 20
In Diagram C, environmental damage is listed as a disadvantage of MNCs for host countries.
Diagram C includes 'environmental damage' in the disadvantages column — MNCs may prioritise profit over environmental protection in host countries with weak regulation.
Question 20 of 20
Rules and regulations as trade barriers always harm domestic consumers.
While they reduce competition and may raise prices, regulations can also benefit consumers by ensuring higher-quality and safer imported products.
Practice
True / False - MNCs
20 questionsQuestion 1 of 20
Operating on a large scale allows MNCs to lower costs through economies of scale and pass savings to customers.
MNCs serve global markets — their massive scale allows them to spread fixed costs, negotiate bulk discounts, and specialise production, lowering average costs.
Question 2 of 20
Exchange rate fluctuations present a financial risk to MNCs earning revenues in multiple currencies.
When an MNC earns in foreign currencies, changes in exchange rates affect the home-currency value of profits — currency risk is a unique challenge of multinational operations.
Question 3 of 20
A company with customers in multiple countries but production only in one country qualifies as an MNC.
Simply exporting to multiple countries does not make a firm an MNC — it must have operational presence (production, offices, or subsidiaries) in two or more countries.
Question 4 of 20
MNCs always improve wages and working conditions in every host country they enter.
MNCs are often criticised for poor working conditions and low wages in low-income host countries — the wage and condition improvements are not guaranteed and vary by company and country.
Question 5 of 20
MNCs' competitive advantage may force local businesses to close down, reducing local entrepreneurship.
MNCs' superior scale, technology, and brand recognition can make it impossible for local firms to compete — driving them out of business and reducing domestic entrepreneurship.
Question 6 of 20
Volkswagen is an example of a German MNC with manufacturing plants in multiple countries.
Volkswagen produces cars in Germany, Mexico, China, and many other countries — a clear example of a European MNC with dispersed global production.
Question 7 of 20
The overall impact of an MNC on a host country depends on the specific context, including the country's level of development and regulatory framework.
Benefits and harms vary — a strong regulatory environment can capture MNC benefits (jobs, tax) while minimising harms (exploitation, environmental damage). Context determines net impact.
Question 8 of 20
An MNC must be headquartered in a developed country.
MNCs can be headquartered in any country — there are major MNCs from developing and emerging economies too, such as Samsung (South Korea), Huawei (China), and Tata Group (India).
Question 9 of 20
By operating globally, MNCs can offset losses in one region with gains in another.
Geographic diversification provides a natural hedge — a downturn in Europe may be offset by growth in Asia, reducing the MNC's overall risk exposure.
Question 10 of 20
Communication barriers due to language, cultural, and time zone differences are management challenges for MNCs.
Operating across many countries means teams speak different languages, follow different business norms, and work at different times — creating real coordination and communication difficulties.
Question 11 of 20
Carrefour's exit from Thailand and Malaysia in 2010 illustrates the risk of host country over-reliance on MNCs.
When Carrefour left, job losses followed — a real-world demonstration of what happens when a host economy or community becomes too dependent on a single MNC.
Question 12 of 20
MNCs can cause environmental damage in host countries, particularly where regulations are weak.
In countries with lax environmental laws, MNCs may pollute, deplete natural resources, or avoid environmental costs — shifting the burden onto the host country's environment.
Question 13 of 20
In Diagram C, environmental damage is listed as a disadvantage of MNCs for host countries.
Diagram C — host country advantages vs disadvantages of MNCs
Diagram C includes 'environmental damage' in the disadvantages column — MNCs may prioritise profit over environmental protection in host countries with weak regulation.
Question 14 of 20
The inflow of MNC investment always improves the host country's balance of payments permanently.
MNC investment improves the capital account — but once the MNC repatriates profits, this creates current account outflows that can worsen the balance of payments over time.
Question 15 of 20
Host countries that rely heavily on a single MNC for employment are economically vulnerable.
Single-employer dependence creates extreme vulnerability — if the MNC leaves or downsizes, the community loses its main source of income with few alternatives available.
Question 16 of 20
MNCs have been criticised for poor working conditions and low wages in low-income host countries.
In countries with weak labour regulations, MNCs sometimes pay below living wages and maintain poor conditions — exploiting lower standards to cut costs.
Question 17 of 20
Repatriated profits from MNCs can be reinvested in the home country's economy.
Profits returned to the home country can be invested in new domestic projects, R&D, or expansion — contributing to home country economic growth.
Question 18 of 20
Managing a geographically spread organisation is easier than managing a single-country firm.
Large geographic spread creates significant management challenges — coordinating teams across time zones, cultures, and languages increases complexity and the risk of miscommunication.
Question 19 of 20
MNCs always pay their fair share of taxes in every host country.
Tax avoidance is a significant criticism — MNCs use transfer pricing and profit-shifting to low-tax jurisdictions to minimise their host country tax bills, reducing government revenues.
Question 20 of 20
In Diagram C, job creation is listed as an advantage of MNCs for the host country.
Diagram C — host country advantages vs disadvantages of MNCs
Diagram C clearly lists job creation in the advantages column — MNC investment generates local employment, which is typically the most visible benefit for host nations.