International trade and the global economy
What's covered
Key facts
Exchange rates
When the price of the pound rises it has "appreciated" (got stronger); when it falls it has depreciated (weakened).
Free-trade agreements including the European Union
Protectionist measures often lead to higher prices for consumers, invite retaliation from other countries and reduce economic efficiency.
Globalisation: benefits and drawbacks
Costs of globalisation include environmental costs, tax avoidance and a brain drain of skilled workers from some countries.
Why countries trade and the importance of international trade to the UK
Trade lets countries import goods that are cheaper than those produced at home and increases the variety of goods and services available to consumers.
Exchange rates
With a rate quoted as £1 = x units of foreign currency, an amount of foreign currency is converted into pounds by dividing by x (for example €200,000 at £1 = €1.10 is €200,000 / 1.1).
Free-trade agreements including the European Union
Arguments for protection include protecting jobs, sheltering new infant industries until they can compete, and countering dumping (selling below cost abroad).
Globalisation: benefits and drawbacks
Globalisation played a key role in the decline of manufacturing employment in the US, UK and Europe, creating structural unemployment among displaced workers.
Why countries trade and the importance of international trade to the UK
Countries rely on trade to acquire resources not available domestically; for example Japan imports oil because it has no significant domestic reserves.
Exchange rates
Pounds are demanded when foreign consumers exchange their currency into pounds to pay for UK exports and when foreign investors buy pounds.
Free-trade agreements including the European Union
On 15 December 2024 the UK officially joined the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), a 12-nation trade deal.
Practice questions with answers
A taste of the 44 questions in this topic, answers marked. Sign up to practise the full set with spaced repetition.
What decides the exchange rate of the pound against other currencies?
- •HM Treasury at each Budget
- ✓Supply and demand in currency markets
- •The Bank of England's Monetary Policy Committee
- •The government's trade department
In international trade, what is a tariff?
- •A ban on imports of a product
- •A limit on the quantity of imports
- •A subsidy paid to exporters
- ✓A tax on imported goods
Which transport development did most to cut the cost of shipping goods worldwide?
- •Faster passenger jet aircraft
- •Larger cargo planes for air freight
- ✓Standard steel shipping containers
- •Wider motorway networks in Europe
According to ONS figures for 2025, which was larger in value for the UK?
- •Exports of food
- •Exports of fuels
- •Exports of goods
- ✓Exports of services
Which of these would increase the demand for pounds on the currency market?
- ✓American firms buying more UK exports
- •UK families taking more holidays abroad
- •UK firms investing more in France
- •UK shoppers buying more foreign goods
On what date did the UK formally leave the European Union?
- •1 January 2021
- •23 June 2016
- •31 December 2020
- ✓31 January 2020
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