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International and free trade (International trade and benefits (Economic…
International and free trade
International trade and benefits
Economic efficiency- gain economies of scale, UK firms forced to be more efficient
Growth- access to new customers
Variety- get products a country doesn't make eg. bananas
International cooperation- leads to cooperation not conflict
Exchange of capital, goods and services to different countries
Specialisation- what a country does best
Globalisation and free trade
Free trade is trade without tariffs (import tax) or quota (limit on imports).
Globalisation is the process of global integration- to come together
Free trade occurs where there are no barriers or limitations to trade
Reasons for trade barriers
Infant industry argument- industry in the home country that is new needs time to grow and gain economies of scale
When a country is running a large balance of payments deficit (imports vs exports)
Foreign competition which lead to higher unemployment
Exchange rates
Price of one currency expressed in the terms of another currency eg £1= $1.50
DON'T NEED TO CALCULATE IT FOR 1ST YEAR
Imports and exports
Imports are products that come in to the UK and payment goes out of the UK
Exports are products going out of the UK and payments come into the UK
Fluctuating exchange rates
Changes in exchange rates affect the price of imports and exports
A rise in the value of the £ means that £1 can buy more foreign currency
A fall in the value of the £ means that £1 can buy less foreign currency
Stronger Pound Imports Cheaper Exports Dearer (SPICED)
Supply for pounds
Desire of UK customers to buy imports eg. US business doesn't want to be paid in £
'Hot money' flows abroad
UK investment abroad eg. buy a factory in France means that euros are needed
Demand for pounds
Desire of foreign customers to buy UK exports
'Hot money' flows into the UK
Foreign investment in the UK- firms want to build factory or office