IGCSE Business Studies
Section A
Chapter 12 – International Trade &
Exchange Rates
Learning Objectives
• Understand the concept of international trade
• Understand how exchange rates work
International Trade
• International Trade is trade between suppliers and customers
who are located in different countries.
This is:-
• To obtain goods that cannot be produced domestically
• To obtain goods that can be bought more cheaply from
overseas.
• To improve consumer choice
• To sell off surplus commodities
Why International Trade Happens?
• Some products can only be produced in some particular places
such as Scotch Whisky (only produced in Scotland). So, if other
countries want them they need to import them.
• Some products are far cheaper to produce in some countries
than others. E.g. bananas
• It may be that a foreign firm produces higher quality products
at more competitive prices than a UK producer, so customers
choose to buy from abroad.
Visible & Invisible Trade
• Imports are goods brought from abroad
• Exports are goods sold to countries abroad
• Economist view two types of trade visible and invisible
• Visible – Trade of physical goods.
• Invisible – involves trade in services.
Task
• List 3 items that the UK imports
• List 3 items that the UK exports
Benefits & Opportunities of
International Trade
• More consumer choice
• Competition
• Growth
• Less Risk
Protectionism
• Tariffs - A tariff is a tax on imports or exports (international trade tariff)
• Quota - a limited quantity of a particular product which under official
controls can be produced, exported, or imported
• Subsidies - a sum of money granted by the state or a public body
(Government) to help an industry or business keep the price of a
commodity or service low.
• Administrative barriers – countries are sometimes accused of using
their various administrative rules (e.g. regarding food safety,
environmental standards, electrical safety, etc.) as a way to introduce
barriers to imports.
• Depreciating exchange rates – an increase in exports and decrease in
imports by allowing exchange rate to fall.
Exchange Rate
What Determines Exchange Rates?
How Exchange Rates Affect Businesses
Exchange Rate – Market Data Live
• [Link]
k/news/business/mar
ket_data/currency/de
[Link]
Exchange rates
• Sell • Buy
• UK export businesses want • UK import businesses have
paying in pounds. to change pounds into
• Foreign customers will foreign currencies to buy
therefore have to change from suppliers
their currency into pounds to
make the payment.
Task 1 - Export
£1 =
A business sells exercise equipment to US Dollar 1.97
companies in a variety of different
countries. Its cycling machine has a price in Euro 1.52
the UK of £250. How much the equipment Turkish Lira 2.76
would sell for in the following countries: Australian Dollar 2.54
Japanese Yen 239
• United States Canadian Dollar 2.33
• Germany
• Turkey
• Australia
• Japan
• Canada
Exchange rates
Remember Rule
• To change pounds into another currency, multiply by the
rate. E.g. at £1 = €1.48, £50 changed into Euro would be
50 x 1.48 = €74.
Task – Export Answers
A business sells exercise equipment to £1 =
companies in a variety of different countries. US Dollar 1.97
Its cycling machine has a price in the UK of
Euro 1.52
£250. How much the equipment would sell for
in the following countries: Turkish Lira 2.76
Australian Dollar 2.54
Japanese Yen 239
• United States = $492.50
Canadian Dollar 2.33
• Germany = €380
• Turkey = 690 Lira
• Australia = AUS$635
• Japan = 59750 Yen
• Canada = Can$582.50
Task 2 - Import
The same business buys in a
number of parts for its exercise
bicycle from different countries. £1 =
Use the currency tables to Danish Kroner 11.30
calculate how much it will have to
pay for the parts if they are priced Mexican Peso 21.52585
in the home country as follows: Indian Rupees 86.47
Taiwan Dollars 64.84
• Denmark - Kr150
• Mexico - Peso 500
• India - Rupees 750
• Taiwan - Taiwan Dollars 690
Exchange rates
Remember Rule
• To change a foreign currency back into pound, divide the
sum by the rate. E.g. to change €90 into pounds, divide
90 by 1.48 = £60.81
Task – Imports Answers
The same business buys in a £1 =
number of parts for its exercise Danish Kroner 11.30
bicycle from different Mexican Peso 21.52585
countries. Use the currency
tables to calculate how much it Indian Rupees 86.47
will have to pay for the parts if Taiwan Dollars 64.84
they are priced in the home
country as follows:
• Denmark - £13.27
• Mexico - £23.23
• India - £8.67
• Taiwan - £10.64
Imports & Exports Summary
• For importers, the problem is when exchange
rates fall. They can either up the price they have
to charge customers or lower their profit
margins.
• For exporters, rising exchange rates may lead to
a fall in the demand for their products and make
it much harder for them to be able to compete
in foreign markets.
Mini Plenary -- Sports Shop Imports
Trainers cost you €30 and you want to sell them for
£40
Exchange Rate Total cost of 200 More expensive or
trainers [in £] cheaper than in the
previous month?
May £1 = €1.47
June £1 = €1.39
July £1 = €1.43
Mini Plenary -- Sports Shop Imports
Trainers cost you €30 and you want to sell them for
£40
Exchange Rate Total cost of 200 More expensive or
trainers [in £] cheaper than in the
previous month?
May £1 = €1.47 £4082
June £1 = €1.39
July £1 = €1.43
Mini Plenary -- Sports Shop Imports
Trainers cost you €30 and you want to sell them for
£40
Exchange Rate Total cost of 200 More expensive or
trainers [in £] cheaper than in the
previous month?
May £1 = €1.47 £4082
June £1 = €1.39 £4317 More expensive
July £1 = €1.43
Mini Plenary -- Sports Shop Imports
Trainers cost you €30 and you want to sell them for £40
Exchange Rate Total cost of 200 More expensive or
trainers [in £] cheaper than in the
previous month?
May £1 = €1.47 £4082
June £1 = €1.39 £4317 More expensive
July £1 = €1.43 £4196 Cheaper
Changes in Exchange Rates
A UK fruit wholesaler buys bananas from a supplier in Honduras.
The Honduran seller wants to be paid in US dollars. A bunch of
ten bananas is currently selling for $20 each. The exchange rate
is currently £1 = $1.75.
•Q1. How much does the UK buyer have to pay, in pounds,
for each bunch of bananas?
• The exchange rate between the pound and the dollar changes. The
pound has appreciated against the dollar and is now standing at £1 =
$1.80.
•Q2. How much will a bunch of bananas now cost the UK
importer?
•Q3. Given your answer to the question above, what do you
think might be the effect on the UK importer of the change in
the exchange rate?
Changes in Exchange Rates
A UK fruit wholesaler buys bananas from a supplier in
Honduras. The Honduran seller wants to be paid in US
dollars. A bunch of ten bananas is currently selling for $20
each. The exchange rate is currently £1 = $1.75.
•Q1. How much does the UK buyer have to pay, in
pounds, for each bunch of bananas? £11.43
• The exchange rate between the pound and the dollar changes.
The pound has appreciated against the dollar and is now standing
at £1 = $1.80.
•Q2. How much will a bunch of bananas now cost the UK
importer? £11.11
•Q3. Given your answer to the question above, what do
you think might be the effect on the UK importer of the
change in the exchange rate?
• Stronger £ reduces costs for the importer
Summary Of Changes in Exchange Rates
• The value of the UK pound against other currencies is
called its exchange rate
• Exporters prefer a weaker £ because it makes their
products appear cheaper to foreign customers
• Importers prefer a stronger £ because it lowers the price
they have to pay suppliers
Plenary
Plenary
Homework
• Explain in detail the meaning of
import and export and why is it
affected by exchange rates
(5 Marks)
