CIE IGCSE NOTES
6.0 International Trade and Globalisation
Practice
True / False - Current Account of Balance of Payments
20 questionsQuestion 1 of 20
Lower living standards are a potential consequence of a persistent current account deficit.
Reduced employment, lower incomes, and reduced government revenues from a prolonged deficit all contribute to declining living standards over time.
Question 2 of 20
A high exchange rate can cause a current account deficit by making exports more expensive for foreign buyers.
A strong currency raises the foreign-currency price of exports (reducing demand) and lowers the domestic price of imports (increasing demand) — both effects worsen the current account.
Question 3 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.
Question 4 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 5 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 6 of 20
The current account is the largest component of the balance of payments.
The current account — covering trade in goods, trade in services, primary income, and secondary income — is the largest and most important section of the BoP.
Question 7 of 20
A current account surplus puts upward pressure on the exchange rate.
A surplus means more demand for domestic currency (foreigners buying exports) than supply — this excess demand pushes the exchange rate up.
Question 8 of 20
A current account deficit may force a country to borrow more from abroad to finance the gap.
A deficit means the country spends more internationally than it earns — it must finance this gap through the capital account by borrowing, selling assets, or attracting foreign investment.
Question 9 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 10 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 11 of 20
Investment in infrastructure supports export businesses and industries.
Better transport, energy, and communication infrastructure reduces firms' operating costs and improves their ability to produce and deliver exports efficiently.
Question 12 of 20
Financial gifts between residents of different countries are recorded in the primary income section.
Financial gifts between residents of different countries are secondary income — primary income covers investment returns (profits, dividends, interest), not gifts.
Question 13 of 20
A lower exchange rate resulting from a deficit automatically worsens the current account further.
A lower exchange rate actually helps correct the deficit by making exports cheaper and imports more expensive — it is a self-correcting mechanism under floating exchange rates.
Question 14 of 20
Raising interest rates is a monetary policy tool that can help reduce a current account deficit.
Higher interest rates make borrowing more expensive — reducing consumer spending (including on imports) and making the country more attractive to foreign investors, supporting the currency.
Question 15 of 20
A persistent current account deficit can lower living standards over time.
Deficits reduce national income, employment, and government tax revenues — all of which can reduce public services and household purchasing power, lowering living standards.
Question 16 of 20
Contractionary fiscal policy (higher taxes, lower spending) can worsen unemployment while improving the current account.
Lower government spending and higher taxes reduce aggregate demand — cutting imports but also reducing output and employment, creating a policy trade-off.
Question 17 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 18 of 20
Fiscal austerity (cuts to spending) reduces the current account deficit by reducing aggregate demand and import spending.
Lower government spending reduces incomes and demand economy-wide — consumers buy less of everything, including imports, narrowing the deficit.
Question 19 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 20 of 20
A weak exchange rate tends to help create a current account surplus.
A depreciated currency makes exports cheaper for foreign buyers (boosting export demand) and imports more expensive domestically (reducing import demand) — both effects improve the current account.
Practice
True / False - Foreign Exchange Rates
20 questionsQuestion 1 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 2 of 20
A fixed exchange rate gives the government more freedom to use monetary policy for domestic objectives.
The opposite is true — a fixed rate constrains monetary policy. Interest rates may need to be adjusted to maintain the fixed rate, limiting their use for domestic goals like controlling inflation.
Question 3 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 4 of 20
A rise in the exchange rate makes it harder for domestic firms to compete in international markets.
Appreciation raises the foreign-currency price of exports, making them less competitive — domestic firms may lose market share to cheaper foreign rivals.
Question 5 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 6 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 7 of 20
Devaluation can contribute to domestic inflation by raising the price of imports.
A weaker currency (post-devaluation) makes all imports more expensive — this raises costs for firms using imported inputs and for consumers buying foreign goods, fuelling inflation.
Question 8 of 20
Rising interest rates in Country A will attract capital inflows from abroad, increasing demand for Country A's currency.
Foreign investors move funds to Country A to earn higher returns — they must buy Country A's currency to do so, increasing its demand and value.
Question 9 of 20
'Hot money' flows refer to speculative short-term capital movements attracted by higher interest rates or expected currency movements.
Hot money moves quickly between countries chasing the best returns — it can cause significant exchange rate volatility as it flows in and out rapidly.
Question 10 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 11 of 20
When US residents demand more Malaysian goods, the supply of USD in the foreign exchange market increases.
Americans selling USD to get Ringgit increases the supply of USD in the forex market — this is the mirror side of the transaction.
Question 12 of 20
A fall in the exchange rate (depreciation) increases the price of exports in the domestic currency.
Depreciation makes exports cheaper in foreign currency terms — but in domestic currency terms, the export price is set by the producer and does not automatically change. It is the foreign buyer who benefits from lower prices.
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
A revaluation of the currency makes imports cheaper for domestic consumers.
A higher exchange rate means each unit of domestic currency buys more foreign currency — reducing the domestic price of imported goods.
Question 15 of 20
A fixed exchange rate is one where the rate is set and controlled by the central bank.
Under a fixed system, the government (via the central bank) commits to maintaining the currency at a specific value against another currency or basket of currencies.
Question 16 of 20
The foreign exchange rate is the value or price of a currency expressed in terms of another currency.
This is the definition of a foreign exchange rate — for example, 1 USD = MYR 4.5 means one US dollar is worth 4.5 Malaysian Ringgit.
Question 17 of 20
A depreciation of the currency is always beneficial for all sectors of the economy.
While depreciation helps exporters, it harms importers and raises inflation. Firms relying on imported inputs face higher costs — so the effects are uneven across sectors.
Question 18 of 20
Exchange rate changes have no effect on domestic price levels.
Exchange rate changes directly affect import prices — a depreciation raises import costs (inflationary), while an appreciation lowers them (disinflationary).
Question 19 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 20 of 20
One advantage of floating exchange rates is that countries are better insulated from external economic shocks.
External shocks (e.g. sudden fall in export demand) cause the currency to depreciate, which partially offsets the shock by boosting competitiveness — providing a buffer.
Practice
True / False - Globalisation, Free Trade and Protection
20 questionsQuestion 1 of 20
Subsidies increase the supply of domestic goods and incentivise firms to produce more.
Lower production costs mean firms can profitably produce more — increasing supply and output levels in the subsidised industry.
Question 2 of 20
Differences in legal systems, tax regulations, and environmental laws across countries make MNC operations simpler.
Navigating different legal and regulatory systems across countries creates operational complexity and costs for MNCs — this is a disadvantage.
Question 3 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 4 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 5 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 6 of 20
Globalisation is the process of increased interconnectedness among countries, leading to greater economic integration and cultural exchange.
This is the definition of globalisation — it describes the growing interdependence of the world's economies, cultures, and populations.
Question 7 of 20
In Diagram C, job creation is listed as an advantage of MNCs for the host country.
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.
Question 8 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 9 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 10 of 20
MNCs face political risk when operating in countries with unstable governments or policy environments.
Policy changes — nationalisation, sudden tax increases, or trade restrictions — can occur in politically unstable countries, threatening MNC investments and operations.
Question 11 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 12 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 13 of 20
Operational challenges such as differences in environmental laws across countries can increase MNC compliance costs.
Meeting different environmental standards in each country requires legal expertise and operational adjustments — adding to costs that domestic firms do not face.
Question 14 of 20
Whether MNCs are net beneficial or harmful to a host country is a question of balance that requires weighing advantages and disadvantages in context.
This is the key evaluation point — there is no universal answer. Context, regulation, and the specific MNC and host country all determine whether the net impact is positive or negative.
Question 15 of 20
A tariff makes domestic goods relatively cheaper compared to imports.
By raising the price of imports, a tariff shifts demand towards domestically produced substitutes, protecting domestic industries.
Question 16 of 20
A government subsidy to domestic farmers lowers the price of their products for consumers.
By reducing production costs, subsidies allow producers to lower their prices — benefiting consumers both domestically and in export markets.
Question 17 of 20
In Diagram A, both advantages and disadvantages of MNCs are summarised side by side.
Diagram A presents a balanced overview — listing advantages (job creation, economies of scale, profit, etc.) alongside disadvantages (unethical practices, local firm harm, etc.).
Question 18 of 20
Competition from MNCs can encourage domestic firms in host countries to improve efficiency.
When MNCs bring superior products and management practices, local firms face pressure to improve their own efficiency and quality to survive — potentially raising overall productivity.
Question 19 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 20 of 20
A decrease in transportation costs is a cause of increased globalisation.
Cheaper shipping (e.g. containerisation) makes it more economical to trade goods internationally, accelerating globalisation.
Practice
True / False - MNCs
20 questionsQuestion 1 of 20
Local firms being crowded out by MNCs is a disadvantage for host countries.
When MNCs dominate markets, local businesses cannot compete — reducing domestic entrepreneurship, diversity of ownership, and long-term economic resilience.
Question 2 of 20
In Diagram D, the host country benefits from profit repatriation.
Diagram D — profit repatriation: who benefits, who loses?
Diagram D shows profit repatriation flowing AWAY from the host country to the home country — this is a loss of income for the host, not a benefit.
Question 3 of 20
Workers in host countries gain skills and training from working with MNCs.
MNCs often provide training in technical skills, management, and workplace practices — improving the human capital of the local workforce even if workers later move to other employers.
Question 4 of 20
Competition from MNCs can encourage domestic firms in host countries to improve efficiency.
When MNCs bring superior products and management practices, local firms face pressure to improve their own efficiency and quality to survive — potentially raising overall productivity.
Question 5 of 20
Exxon Mobil is an example of an MNC in the oil and energy sector.
Exxon Mobil explores, extracts, refines, and sells oil and gas across dozens of countries — one of the world's largest and most geographically spread MNCs.
Question 6 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 7 of 20
In Diagram C, low wages and poor working conditions are listed as a disadvantage of MNCs for host countries.
Diagram C — host country advantages vs disadvantages of MNCs
Diagram C shows 'low wages / poor conditions' in the disadvantages column — a well-documented criticism of MNC operations in developing host countries.
Question 8 of 20
Apple is an example of an MNC headquartered in the USA with global operations.
Apple designs in California but manufactures globally (primarily in China) and sells worldwide — a classic example of an MNC with dispersed global operations.
Question 9 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 10 of 20
Avoidance of trade restrictions is an advantage for MNCs because it allows them to access markets without paying tariffs.
By producing locally in target markets or within trade blocs, MNCs sidestep tariffs and quotas — improving their cost competitiveness and market access.
Question 11 of 20
In Diagram B, local firms are shown as one of the stakeholders affected by MNC activity.
Diagram B — 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 12 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 13 of 20
MNCs can make host country governments reluctant to improve labour or environmental standards for fear of losing investment.
Governments compete for MNC investment — this 'race to the bottom' pressure can discourage raising wages or environmental standards, lest the MNC relocate to a less regulated country.
Question 14 of 20
Differences in legal systems, tax regulations, and environmental laws across countries can complicate MNC operations.
Each country has different rules — navigating multiple legal systems, tax codes, and regulatory environments adds complexity and cost to MNC management.
Question 15 of 20
MNC expansion abroad can open new export markets for home country goods and services.
When MNCs establish a presence abroad, they often continue to source goods from their home country — creating export opportunities for home-based suppliers.
Question 16 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 17 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 18 of 20
Government exploitation by MNCs occurs when powerful MNCs secure special deals that are not in the public interest.
MNCs with economic power can negotiate subsidies, tax breaks, and regulatory exemptions from governments — securing advantages that cost the public but benefit the corporation.
Question 19 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 20 of 20
The benefits of MNC investment may be greater in developing countries with large skill and capital gaps.
In countries lacking capital and technology, MNC investment fills critical gaps — providing jobs, skills, and technology that may not otherwise be available.