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Topic 6 of 6 · Form 4

International trade and globalisation

Benefits and disadvantages of specialisation at regional and national levels; absolute and comparative advantage (basic understanding).

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Specialisation and trade

Benefits and disadvantages of specialisation at regional and national levels; absolute and comparative advantage (basic understanding).

Globalisation and multinational companies (MNCs)

Causes of globalisation (technology, transport, trade agreements); benefits and costs of MNCs to host countries.

Free trade and protection

Benefits of free trade; methods of protection (tariffs, quotas, subsidies, embargoes); reasons for protection (infant industries, jobs, strategic industries, dumping); consequences (higher prices, retaliation).

Foreign exchange rates

Determination in the foreign exchange market (demand and supply of currencies); floating and fixed rates; causes and consequences of appreciation and depreciation.

Worked example: The exchange rate changes from US$1 = 15 units of local currency to US$1 = 18 units. Has the local currency appreciated or depreciated, and what happens to the price of imports?

It has depreciated (more local currency needed per dollar), so imports become more expensive.

The current account of the balance of payments

Trade in goods and services, primary income and secondary income (e.g. remittances); causes and consequences of current account deficits and surpluses; policies to correct them.

Exam tip: Explain exchange-rate effects in terms of export and import prices, then demand.

Check yourself

  1. Give two reasons for protectionism.
  2. Where are remittances from relatives abroad recorded in the balance of payments?
  3. Give one benefit of multinational companies to a host country.
Show answers
  1. Any two: protect infant industries, protect jobs, prevent dumping, strategic reasons, raise revenue.
  2. In the current account (secondary income).
  3. Any one: jobs, investment, technology transfer, tax revenue, exports.
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