CAIE IGCSE Business Studies 6.2 Business and the International Economy Questions
Use this international-economy page to define global terms, explain trade barriers and judge exchange-rate or import decisions.
- Syllabus
- 2027–2029
- Course
- Business 0264
Exam points
- Define globalisation as countries becoming connected through trade in goods and services.
- Explain import controls, tariffs or quotas using cost and supply effects on a business.
- Justify whether exchange rates are the most important factor in an import decision.
Covered syllabus points
Question 1
[Maximum number: 2]
DLT manufactures cups and plates in country X. Its factory uses flow production and has 75 employees. The Human Resources Director is aware that there are many legal controls over employment. DLT exports 30% of its products to country Y where it benefits from lower rates of taxation and no import quotas. DLT's Managing Director is considering relocating its factory to another part of country X to meet the increased demand for its exports.
Define 'import quota'.
Award 2 marks for a full definition. Award 1 mark for a partial definition.
Physical limit on the number/amount of goods that can be imported/allowed into a country [2]
OR
Restriction on the quantity of a product that can be imported [2]
Partial definition e.g. limit on number/quantity of goods [1] OR limit on imports [1]
To award both marks the answer must include the idea of limit on number/quantity of goods and the idea of imported/into the country.
Do not award:
- answers which confuse the term with a tariff.
Question 2
[Maximum number: 8]
GAE is a multinational company. It manufactures steel. GAE has 2400 employees and has factories in 4 countries. The business regularly introduces new technology. Holding inventory is important. GAE's directors are planning to build a new factory and want to know how legal controls over location might affect this decision. The Managing Director said, 'The new factory will create many external benefits.'
Question (a)
(a)
Define 'external benefits'.
Award 2 marks for a full definition. Award 1 mark for a partial definition.
- Gains to the rest of society other than the business as a result of business activity [2]
Partial definition e.g.
- Gains to the rest of society / third party [1]
References to business activity is [+1] only.
Question (b)
(b)
Explain two benefits to a business of being a multinational company. Which benefit is likely to be the most important? Justify your answer.
Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award up to 2 marks for a justified decision as to which benefit of being a multinational company is likely to be the most important.
Points might include:
- Spreading risk [k] so a fall in sales / revenue in one country can be offset by an increase in sales / revenue in another country [an]
- Access new / wider markets / sales / customers [k] increasing revenue / (global) market share [an]
- Improve brand image / reputation [k] to help increase / maintain customers AND/OR could allow them to set higher prices / provide competitive advantage [an]
- Economies of scale [k] lowering average/unit costs [an]
- Cheaper / access (better quality) raw materials [k] reducing transport costs [an] OR access better quality / wider range of raw materials [k] allowing the business to produce new products [an]
- Access to cheap labour [k] which can lower costs / increase profit margin [an] OR Access to skilled labour [k] which could increase efficiency [an]
- Avoid import quotas [k] so no/fewer limits on the number of products the business can import into a country [an]
This is a general question so there are no marks for application.
Some points can be [k] or [an] but only award once.
The following are [an] only:
- Increase market share
- Provide competitive advantage
- Avoid import tariffs [k] so does not make products more expensive [an]
- Reduced tax liability / benefit from favourable / lower tax rates [k]
- Access government support/grants [k]
Other appropriate responses should also be credited.
Justification might include:
One benefit is spreading risk [k] so a fall in sales in one country can be offset by sales in another country [an]. It also allows for easier access to raw materials [k] reducing transport costs [an]. Access to raw materials is likely to be the most important benefit because this could reduce production costs leading to lower prices helping the business remain competitive [eval] and ensuring the extra sales are achievable [eval].
Question 3
[Maximum number: 2]
NSL is a business based in country X．It manufactures food products including bread and breakfast cereals．NSL uses lean production in its factory．Maintaining quality is important．NSL imports 15% of its raw materials．Changes in country X＇s exchange rate can affect businesses which import raw materials．NSL＇s Marketing Manager knows the business should respond to changes in consumer spending patterns．She is aware that market research can be used to help make business decisions．
Identify one way each of the following changes in country X＇s exchange rate might affect businesses which import raw materials．
Depreciation：
Appreciation：
Award 1 mark for each way (max 2).
Points might include:
- Depreciation: Imports dearer/more expensive
- Appreciation: Imports cheaper
Only award the first two responses given.
Do not award answers about the effect on exports.
Question 4
[Maximum number: 6]
GAE is a multinational company. It manufactures steel. GAE has 2400 employees and has factories in 4 countries. The business regularly introduces new technology. Holding inventory is important. GAE's directors are planning to build a new factory and want to know how legal controls over location might affect this decision. The Managing Director said, 'The new factory will create many external benefits.'
Explain two benefits to a business of being a multinational company. Which benefit is likely to be the most important? Justify your answer.
Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award up to 2 marks for a justified decision as to which benefit of being a multinational company is likely to be the most important.
Points might include:
- Spreading risk [k] so a fall in sales / revenue in one country can be offset by an increase in sales / revenue in another country [an]
- Access new / wider markets / sales / customers [k] increasing revenue / (global) market share [an]
- Improve brand image / reputation [k] to help increase / maintain customers AND/OR could allow them to set higher prices / provide competitive advantage [an]
- Economies of scale [k] lowering average/unit costs [an]
- Cheaper / access (better quality) raw materials [k] reducing transport costs [an] OR access better quality / wider range of raw materials [k] allowing the business to produce new products [an]
- Access to cheap labour [k] which can lower costs / increase profit margin [an] OR Access to skilled labour [k] which could increase efficiency [an]
- Avoid import quotas [k] so no/fewer limits on the number of products the business can import into a country [an]
This is a general question so there are no marks for application.
Some points can be [k] or [an] but only award once.
The following are [an] only:
- Increase market share
- Provide competitive advantage
- Avoid import tariffs [k] so does not make products more expensive [an]
- Reduced tax liability / benefit from favourable / lower tax rates [k]
- Access government support/grants [k]
Other appropriate responses should also be credited.
Justification might include:
One benefit is spreading risk [k] so a fall in sales in one country can be offset by sales in another country [an]. It also allows for easier access to raw materials [k] reducing transport costs [an]. Access to raw materials is likely to be the most important benefit because this could reduce production costs leading to lower prices helping the business remain competitive [eval] and ensuring the extra sales are achievable [eval].
Question 5
[Maximum number: 2]
GAE is a multinational company. It manufactures steel. GAE has 2400 employees and has factories in 4 countries. The business regularly introduces new technology. Holding inventory is important. GAE's directors are planning to build a new factory and want to know how legal controls over location might affect this decision. The Managing Director said, 'The new factory will create many external benefits.'
Define 'external benefits'.
Award 2 marks for a full definition. Award 1 mark for a partial definition.
- Gains to the rest of society other than the business as a result of business activity [2]
Partial definition e.g.
- Gains to the rest of society / third party [1]
References to business activity is [+1] only.
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