11 International trade and exchange rates

Question 1

How can international trade benefit countries?

Answer 1

1. Allows countries to obtain goods that cannot be produced domestically
2. Allows countries to obtain goods that can be bought more cheaply from overseas
3. Provides opportunities for countries to sell off surplus commodities
4. Helps to improve consumer choice

Question 2

Define surplus

Answer 2

Amount of something that is more than what is needed or used

Question 3

Define visible trade

Answer 3

Trade in physical goods

Question 4

Define invisible trade

Answer 4

Trade in services

Question 5

Define balance of trade (or visible balance)

Answer 5

Difference between visible exports and visible imports

Question 6

Define exports

Answer 6

Goods and services sold overseas

Question 7

Define imports

Answer 7

Goods and services bought from overseas

Question 8

Define transaction

Answer 8

Business deals or actions, such as buying or selling something

Question 9

Define exchange rate

Answer 9

The value of one currency in terms of another

Question 10

How much would it cost a French firm to buy goods from a British firm that cost £400000 if £1 = €1.20

Answer 10

£400000 x 1.2 = €480000

Question 11

How many US dollars will be needed by an Italian firm buying €55000 of goods from an American firm if €1 = US$1.10?

Answer 11

€55000 x 1.10 = US$60500

Question 12

How much will it cost a UAE firm in dirhams to buy US$300000 of goods from a US firm is AED 1 = US$0.30?

Answer 12

US$300000 ÷ 0.3 = AED 1000000

Question 13

Explain the advantage to the UK of their pound depreciating against the dollar

Answer 13

Demand for UK exports is likely to rise

Because they are now cheaper than they were before the change in the exchange rate
Leads to businesses from other countries preferring the UK’s goods against others
Therefore businesses in the UK being able to gain more revenue to reinvest into the business

Question 13

Explain the advantage to the UK of their pound appreciating against the dollar

Answer 13

Imports are now cheaper

Because the same amount of local currency can buy more foreign products
Leads to businesses in the UK being able to buy desired products for a cheaper price
Therefore being able to reinvest profits made (from cutting down prices of needed products) into the business

Question 14

Explain the disadvantage to the UK of their pound depreciating against the dollar

Answer 14

Imports are dearer

Because the amount of local currency is worth less in other countries
Leads to businesses having to pay a large amount to import products from overseas
Therefore higher costs and less profits to reinvest

Question 15

Explain the disadvantage to the UK of their pound appreciating against the dollar

Answer 15

Demand for UK exports is likely to fall

Because they are now dearer than they were before the change in the exchange rate
Leads to businesses from other countries avoiding purchase of goods from the UK against others
Therefore businesses in the UK gaining less sales and revenue to reinvest into the business

Question 16

Define commission

Answer 16

Extra amount of money that is paid to a person or organisation according to the value of the goods they have sold or the services they have provided