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6. International trade and globalisation

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  1. 6.1. Specialisation and free trade

    1. • definition of specialisation by country • the basis for specialisation by country in terms of the best resource allocation and/or low-cost production • advantages and disadvantages of specialisation

    2. • definition of free trade • advantages and disadvantages of free trade

  2. 6.2. Globalisation and trade restrictions

    1. • Definition of globalisation

    2. • causes of changes in globalisation: • changes in trade restrictions • changes in transport costs • changes in communication costs • movement of multinational companies (MNCs) • effects of changes in globalisation on: • international trade • competition • the environment • migration • income distribution • economic development

    3. • MNCs and their advantages and disadvantages to host countries and home countries

    4. • tariffs • import quotas • subsidies • embargoes

    5. • protect infant (sunrise) industries • protect declining (sunset) industries • protect strategic industries • avoid dumping • reduce a deficit on the current account of the balance of payments • raise tax revenue • restrict the import of demerit goods • promote environmental sustainability

    6. • impact of trade restrictions on the home country and its trading partners • advantages and disadvantages of restricting free trade

  3. 6.3. Foreign exchange rates

    1. 6.3.1Definition of foreign exchange rate

      • Definition of foreign exchange rate

    2. 6.3.2Reasons for buying and selling foreign currencies

      • trade in goods and services • speculation • government intervention in currency markets • payment of profit, interest and dividends between countries • workers’ remittances • investment in capital goods between countries

    3. 6.3.3Determination of foreign exchange rate in foreign exchange market

      • definitions of floating exchange rate, appreciation and depreciation • the demand for and supply of a currency • the determination of the equilibrium foreign exchange rate • causes of foreign exchange rate fluctuations • changes in demand for exports and imports • changes in the interest rate • speculation

    4. 6.3.4Consequences of changes in foreign exchange rates

      • effects of changes in foreign exchange rates on prices and demand for exports and imports

  4. 6.4. Current account of the balance of payments

    1. • components of the current account of the balance of payments: • trade in goods • trade in services • primary income • secondary income • calculation of deficits and surpluses on the current account of the balance of payments and its component sections

    2. • reasons for current account deficits and surpluses

    3. • impact on GDP, employment, inflation and foreign exchange rate

    4. • the range of policies available to achieve balance of payments stability and their effectiveness