International trade

Revise International trade for Commerce 7100 (O Level) — revision notes, 150 practice questions and instant AI marking.

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Cambridge O Level Commerce 7100

International Trade

The big idea: Countries trade because none can make everything it wants as cheaply as others can. Trade brings choice, jobs and investment, but selling abroad is harder than selling at home. The Balance of Trade and Balance of Payments measure whether more money flows in from exports than flows out on imports, and governments use free trade agreements or trade restrictions to shape that flow.

Summary — What This Chapter Covers

Benefits to a country: wider choice of goods, higher standard of living, lower cost of imports, more investment and creation of jobs.
Challenges for exporters and importers: distance, language, methods of payment, documentation, transport, customs duties, non-payment, currencies and exchange rates, competition, different legal systems.
Balance of Trade = visible exports − visible imports (goods only). Balance of Payments includes invisible trade (services) as well.
A positive balance is a surplus; a negative balance is a deficit.
Free trade means no barriers; a trading bloc is a group of countries with free trade between members.
Trade restrictions: tariffs (a tax on imports), quotas (a limit on quantity), embargoes (a ban).
Support for exporters: international trade fairs, cheaper bank loans and insurance guarantees.

1. Benefits of International Trade to a Country

Syllabus 3.1.1 · Papers 1 & 2

Why countries trade

Definition · Exports Goods and services sold to other countries, which bring money into the country.

Definition · Imports Goods and services bought from other countries, which send money out of the country.

Benefit	How it happens	Example
Wider choice of goods	Consumers can buy goods the country cannot produce, for example because of climate or lack of raw materials	Bananas in a cold country; oil in a country without oil fields
Higher standard of living	More choice and cheaper goods mean people can buy more with their income	Families can afford imported phones and cars
Lower cost of imports	Goods are bought from the country that makes them most cheaply, instead of making them expensively at home	A manufacturer imports cheaper components and keeps its own prices down
More investment	Foreign businesses build factories, offices and ports to produce for export or sell in the country	A car maker builds an assembly plant
Creation of jobs	Exporting firms grow and employ more; ports, transport, banks and insurers need staff	A clothing exporter hires 300 machinists

Practice Question 1

Explain two reasons why a country imports bananas.

2. Challenges for Exporters and Importers

Syllabus 3.1.2 · Papers 1 & 2

Why selling abroad is harder than selling at home

Challenge	Why it is a problem	How a business can reduce it
Distance	Goods take longer to arrive and may be damaged on the way	Containerisation; air freight for urgent goods; insurance
Language	Misunderstanding orders, labels and contracts	Translators; agents in the other country
Methods of payment	The seller wants payment first; the buyer wants the goods first	Documentary credit (letter of credit)
Documentation	Many extra documents; a mistake can hold goods at the port	Freight forwarders prepare them
Transport	Long journeys, transshipment, delays at ports	Freight forwarders; choosing the right method of transport

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Also in the full note

Measuring the money flowing in and out
Opening and closing the door to trade
Calculations and judgements on trade

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International trade