CIE IGCSE NOTES
6.0 International Trade and Globalisation
Practice
True / False - Current Account of Balance of Payments
20 questionsQuestion 1 of 20
Low domestic productivity leads to lower demand for a country's exports.
Less productive economies produce at higher cost — making their exports less price-competitive internationally and reducing foreign demand for them.
Question 2 of 20
A strong exchange rate reduces demand for imports, helping to improve the current account.
A strong exchange rate makes imports cheaper — increasing demand for them. This worsens the current account by raising import spending, not improving it.
Question 3 of 20
A depreciation of the currency is a policy tool governments can use to improve the current account.
Devaluation (in a fixed system) or allowing depreciation (in a floating system) makes exports cheaper and imports dearer — both effects help reduce the current account deficit.
Question 4 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.
Question 5 of 20
The balance of payments records transactions over a specific period of time, not a single point in time.
Like income statements, the BoP is a flow measure — it records transactions occurring over a period (usually one year), not a stock at a single moment.
Question 6 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 7 of 20
A current account surplus always means an economy is performing well in all areas.
A surplus can result from suppressed domestic demand (e.g. recession causing low imports) rather than export strength — a surplus alone does not guarantee overall economic health.
Question 8 of 20
A surplus on the current account means a country spends more on imports than it earns from exports.
A current account surplus means a country earns more from exports (and other inflows) than it spends on imports — the opposite of a deficit.
Question 9 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 10 of 20
Trade in services is known as the invisible balance.
Since services are intangible and cannot be seen crossing borders, trade in services is called the invisible balance.
Question 11 of 20
Government subsidies to exporters can improve the current account by boosting export capacity.
Subsidies lower production costs for exporting firms — enabling them to offer more competitive prices internationally and expand export volumes.
Question 12 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 13 of 20
Higher taxes reduce household income, which in turn decreases spending on imports.
This is the transmission mechanism of contractionary fiscal policy on the current account — lower disposable income reduces demand for all goods including imports.
Question 14 of 20
A higher exchange rate resulting from a surplus always makes the surplus larger.
A higher exchange rate makes exports more expensive and imports cheaper — reducing export demand and increasing import demand, which tends to reduce the surplus over time.
Question 15 of 20
Lower production costs relative to competitors make a country's exports more price-competitive, supporting a surplus.
If domestic firms produce more cheaply than foreign rivals, their exports are attractively priced — increasing foreign demand and contributing to a current account surplus.
Question 16 of 20
A depreciation of the exchange rate typically helps reduce a current account deficit.
A weaker currency makes exports cheaper for foreign buyers (boosting export demand) and imports more expensive for domestic consumers (reducing import demand) — both effects improve the current account.
Question 17 of 20
A current account deficit tends to put downward pressure on the exchange rate.
A deficit means more domestic currency is being supplied (to buy imports) than demanded (for exports) — this excess supply puts downward pressure on the currency's value.
Question 18 of 20
A current account deficit has no effect on employment levels in the economy.
A deficit means domestic production loses out to foreign competition — firms produce less and employ fewer workers, increasing unemployment in import-competing industries.
Question 19 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 20 of 20
A current account deficit can lead to reduced aggregate demand in the domestic economy.
A deficit means more money is flowing out (on imports) than coming in (from exports) — this net outflow reduces overall spending and demand in the economy.
Practice
True / False - Foreign Exchange Rates
20 questionsQuestion 1 of 20
When the government buys foreign currency, the supply of domestic currency in the market increases, causing it to depreciate.
To buy foreign currency, the government must sell (supply) domestic currency — increasing its supply in the forex market and pushing its value down.
Question 2 of 20
A net oil-importing country operating a fixed exchange rate cannot easily use currency adjustment to correct a current account deficit caused by rising oil prices.
Under a fixed rate, the currency cannot depreciate to make exports cheaper and imports dearer. The government is constrained — it cannot devalue significantly without abandoning the fixed rate.
Question 3 of 20
Devaluation of a currency will always successfully improve the current account balance.
Devaluation helps only if export and import demand is sufficiently price-elastic. If demand is inelastic (as described by the Marshall-Lerner condition), devaluation may not improve — or could worsen — the current account.
Question 4 of 20
When the government sells foreign currency, demand for domestic currency increases and it appreciates.
Selling foreign currency means buyers must pay with domestic currency — increasing demand for the domestic currency and pushing up its value.
Question 5 of 20
Foreign exchange rates play a vital role in international trade, investment, and economic stability.
The exchange rate affects the price of exports and imports, the attractiveness of a country for foreign investment, and overall economic stability.
Question 6 of 20
An appreciation of the domestic currency reduces the cost of imported raw materials for domestic firms.
A stronger currency means imports cost less — lowering production costs for firms that rely on imported inputs, potentially reducing inflationary pressure.
Question 7 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 8 of 20
A fixed exchange rate prevents sudden changes in the balance of payments.
Because the rate is stable, import and export prices do not fluctuate due to currency movements — helping to stabilise trade flows and the current account.
Question 9 of 20
A fall in interest rates in a country tends to reduce demand for its currency.
Lower interest rates make saving in that currency less attractive to foreign investors — demand for the currency falls and it may depreciate.
Question 10 of 20
A floating exchange rate provides insulation from external economic shocks.
If global conditions change (e.g. fall in foreign investment), the currency can depreciate to adjust — cushioning the domestic economy from the full impact of external shocks.
Question 11 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 12 of 20
If a fixed exchange rate is set too low, it can cause inflation.
An undervalued currency makes imports more expensive — raising domestic prices and contributing to inflation through higher import costs.
Question 13 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.
Question 14 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 15 of 20
When a currency appreciates, the price of exports rises for foreign buyers.
A stronger currency means foreigners must pay more of their own currency to buy the same amount of exports — making them more expensive and less competitive abroad.
Question 16 of 20
Changes in domestic interest rates affect exchange rates by changing the relative attractiveness of saving in that currency.
Higher rates attract foreign savers; lower rates repel them. This changes the demand for the currency — a key transmission mechanism of monetary policy to exchange rates.
Question 17 of 20
Investment in overseas production plants requires the use of foreign currencies, affecting exchange rates.
To set up plants abroad, firms must exchange domestic currency for foreign currency — increasing supply of the domestic currency in the forex market.
Question 18 of 20
Inflation higher than in other countries may cause a currency to depreciate.
High domestic inflation makes exports more expensive and less competitive, reducing export demand — and therefore demand for the currency — causing it to fall in value.
Question 19 of 20
A floating exchange rate system means a country does not need to worry about balance of payments imbalances.
In theory, floating rates self-correct — a deficit causes depreciation which boosts exports and reduces imports, automatically restoring equilibrium.
Question 20 of 20
Exchange rate stability is important for businesses because it makes planning and investment easier.
When exchange rates are predictable, firms can set prices, plan contracts, and budget for imports and exports with confidence — reducing uncertainty and risk.
Practice
True / False - Globalisation, Free Trade and Protection
20 questionsQuestion 1 of 20
Host country governments receive no tax revenue from MNC operations.
MNCs pay corporate taxes, employment taxes, and other levies to host governments — providing revenue that can fund public services and infrastructure.
Question 2 of 20
Profits earned by MNCs in host countries are always reinvested in those host countries.
MNC profits are often repatriated (sent back) to the home country — this is a disadvantage for the host country as money leaves its economy.
Question 3 of 20
MNCs benefit their home countries by repatriating profits earned abroad.
When overseas profits flow back to the home country, they increase national income, fund shareholder dividends, and can be reinvested in domestic operations.
Question 4 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 5 of 20
Globalisation has no effect on the environment.
Globalisation increases the movement of goods, which raises carbon emissions. It can also lead to over-exploitation of natural resources in countries with weak environmental laws.
Question 6 of 20
Lower taxes in Hong Kong, Singapore, and Bahrain attract MNCs to locate there.
These are real examples from the notes — favourable tax environments make these locations attractive for MNC headquarters and operations.
Question 7 of 20
In Diagram C, technology transfer is listed as an advantage MNCs bring to host countries.
Diagram C includes technology transfer in the advantages column — when MNCs introduce advanced production methods, local firms and workers can learn and adopt these technologies.
Question 8 of 20
Embargoes are usually imposed for economic reasons to gain a trade advantage.
Embargoes are typically imposed due to political conflicts, trade disputes, or to apply economic pressure — not primarily to gain a trade advantage.
Question 9 of 20
MNC presence in a host country can stimulate the development of local supplier industries.
MNCs often source materials and services locally — creating demand for local suppliers, supporting the growth of domestic businesses linked to the MNC supply chain.
Question 10 of 20
Subsidies can allow domestic firms to export at lower prices, improving their international competitiveness.
Government subsidies reduce production costs, enabling firms to undercut foreign rivals in global markets — boosting export competitiveness.
Question 11 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 12 of 20
MNCs help improve living standards in host countries by creating employment opportunities.
When MNCs set up operations in foreign countries, they hire local workers — creating jobs and improving household incomes and living standards.
Question 13 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 14 of 20
An effect of a tariff is to shift the supply curve of domestic producers to the right.
A tariff does not directly shift domestic supply. It raises the price of imports, which shifts demand towards domestic goods — it is the demand side that is affected, not the domestic supply curve.
Question 15 of 20
The United States providing subsidies to its corn and soybean farmers is an example of an export subsidy.
US agricultural subsidies help American farmers compete internationally by lowering their costs — making US farm products cheaper than they would otherwise be.
Question 16 of 20
Globalisation can lead to greater migration of workers between countries.
As economies integrate, workers can move more freely to find jobs — contributing to both economic growth and cultural exchange, but also potential social pressures.
Question 17 of 20
Tesco's US venture 'Fresh & Easy' failing is an example of an MNC's failure to adapt to local tastes.
Tesco misjudged US consumer preferences and behaviour — 'Fresh & Easy' closed between 2013 and 2015, illustrating the risk of failure to adapt to local markets.
Question 18 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 19 of 20
A tariff generates revenue for the government that imposes it.
Every unit of an imported good that still enters the country generates tax revenue for the government — an advantage for government finances.
Question 20 of 20
Free trade has no connection to globalisation.
Free trade is a central driver of globalisation — the removal of trade barriers increases cross-border flows of goods, services, capital, and people.
Practice
True / False - MNCs
20 questionsQuestion 1 of 20
MNCs always choose the lowest-wage country available for their manufacturing operations.
While labour costs matter, MNCs also consider skill levels, infrastructure quality, political stability, market access, and tax rates — location decisions are multifactorial.
Question 2 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 3 of 20
Over-reliance on MNCs is listed as a disadvantage in Diagram C.
Diagram C — host country advantages vs disadvantages of MNCs
Diagram C explicitly lists over-reliance on MNCs as a disadvantage — economic dependency on foreign corporations creates vulnerability when they choose to relocate.
Question 4 of 20
MNCs only operate in manufacturing industries.
MNCs span all sectors — services (banking, retail, technology), manufacturing (cars, electronics), resources (oil, mining), and healthcare. Coca-Cola (beverages) and Johnson & Johnson (healthcare) illustrate this diversity.
Question 5 of 20
Honda, Nissan, and Toyota have factories in China to access the world's largest car market.
China is the world's largest car market — Japanese manufacturers set up local production to serve Chinese consumers and reduce logistics costs.
Question 6 of 20
In Diagram D, the host country benefits most from profit repatriation.
Diagram D — profit repatriation: who benefits, who loses?
Diagram D shows the opposite — profit repatriation benefits the HOME country. It is actually a disadvantage for the host country, which loses income it helped generate.
Question 7 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 8 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 9 of 20
In Diagram B, both host and home countries are shown as stakeholders affected by MNC activity.
Diagram B — stakeholders affected by MNC activity
Diagram B shows both the host country and home country as spokes around the MNC centre — both are stakeholders with potentially different experiences of MNC activity.
Question 10 of 20
The host country is the foreign country where an MNC sets up operations.
Host countries receive FDI from MNCs — gaining jobs, technology, and infrastructure investment, while also facing risks from over-reliance and profit repatriation.
Question 11 of 20
In Diagram A, both advantages and disadvantages of MNCs are summarised side by side.
Diagram A — MNC definition, examples, advantages and disadvantages at a glance
Diagram A presents a balanced overview — listing advantages (job creation, economies of scale, profit, etc.) alongside disadvantages (unethical practices, local firm harm, etc.).
Question 12 of 20
In Diagram C, profit repatriation is listed as a disadvantage of MNCs for host countries.
Diagram C — host country advantages vs disadvantages of MNCs
Diagram C shows profit repatriation as a disadvantage — profits earned in the host country leave the economy when sent to the MNC's home country, reducing local income.
Question 13 of 20
Overreliance on MNCs in low-income countries can lead to severe consequences if the MNC decides to relocate.
If a host economy becomes dependent on one or a few MNCs, their departure can cause mass unemployment and economic crisis — Carrefour's exit from Thailand and Malaysia in 2010 is the example.
Question 14 of 20
Lower taxes in Hong Kong, Singapore, and Bahrain are factors that attract MNCs.
These jurisdictions compete for MNC investment by offering favourable corporate tax rates — making them attractive locations for MNC headquarters and operations.
Question 15 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 16 of 20
A government that offers excessive tax concessions to attract MNCs may lose more in tax revenue than it gains in economic benefits.
If tax breaks are too generous, the government foregoes revenue without sufficient compensation in jobs or growth — the balance between incentives and fiscal cost is a real policy challenge.
Question 17 of 20
In Diagram C, tax avoidance is listed as a disadvantage of MNCs for host countries.
Diagram C — host country advantages vs disadvantages of MNCs
Diagram C shows 'tax avoidance' as a disadvantage — when MNCs shift profits to low-tax jurisdictions, host governments lose tax revenue that could fund public services.
Question 18 of 20
Home countries benefit when MNCs create jobs abroad because this reduces unemployment at home.
MNCs creating jobs abroad may actually reduce home country employment if production moves overseas — this is a potential disadvantage for home countries, not an advantage.
Question 19 of 20
A host country government can maximise the benefits of MNC investment by establishing strong regulatory frameworks.
Regulations that set minimum wage standards, environmental rules, and tax requirements ensure MNCs contribute fairly — allowing countries to capture benefits while limiting exploitation.
Question 20 of 20
Selling to a larger customer base in overseas markets increases MNC profits.
Access to billions of consumers worldwide dramatically expands revenue potential — global sales allow MNCs to earn far more than domestic-only firms.