AQA GCSE Economics: International trade, the UK and exchange rates (8136) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover sections 3.2.4.1 Why countries trade and the importance of international trade to the UK and 3.2.4.2 Exchange rates in the AQA GCSE Economics (8136) specification for first teaching from September 2017. There are no tiers. Firms and numbers are made up. For explanations, see the study guide and revision notes. Other links: the AQA GCSE Economics hub, the checklist and the free diagnostics.

Questions

1. Explain two benefits to the UK of international trade. [4]

2. State one type of service and one type of good that the UK exports. [2]

3. Explain what is meant by global interdependence and give one risk it creates for the UK. [3]

4. Define an exchange rate. [1]

5. Explain how an increase in demand for UK exports affects the value of the pound. [3]

6. Explain why a rise in UK interest rates might cause the pound to appreciate. [3]

7. The exchange rate changes from £1 = €1.10 to £1 = €1.25. (a) A UK-made bicycle costs £400. Calculate its price in euros before and after the change. [2] (b) A French wine costs €20. Calculate its price in pounds after the change, to the nearest penny. [1] (c) State whether the pound has appreciated or depreciated. [1]

8. Explain how a depreciation of the pound could affect a UK firm that imports most of its raw materials. [3]

9. Explain how a depreciation of the pound could affect UK consumers. [3]

10. Explain why a recession in the UK’s main trading partners could increase unemployment in the UK. [3]

11. A UK car maker exports half its output and imports many of its parts. Evaluate whether a fall in the value of the pound would benefit the firm. [9]

Answers

1. Any two developed: lower prices [1] because competition from imports pushes UK firms to keep prices down [1]; more choice [1] as consumers can buy goods not made in the UK [1]; larger markets for UK firms [1], so they can sell more and create jobs [1]. [4]

2. Service: e.g. financial services, insurance, education or tourism [1]. Good: e.g. cars, machinery or medicines [1]. [2]

3. Economies rely on one another for goods, services, markets and investment [1]. Risk, developed: a fall in demand abroad reduces UK exports [1], so UK firms cut output and jobs [1]. [3]

4. The price of one currency in terms of another [1]. [1]

5. Foreign buyers need pounds to pay for UK goods [1], so demand for pounds rises [1], causing the pound to appreciate [1]. [3]

6. Saving in UK banks earns a higher return [1], so foreign savers buy pounds to deposit [1]; demand for pounds rises and the pound appreciates [1]. [3]

7. (a) Before: 400 × 1.10 = €440 [1]; after: 400 × 1.25 = €500 [1]. (b) 20 ÷ 1.25 = £16.00 [1]. (c) Appreciated [1]. [4]

8. Each pound buys less foreign currency, so imported materials cost more in pounds [1]; the firm’s costs rise [1], so it must either raise prices, possibly losing sales, or accept lower profit [1]. [3]

9. Imports become dearer [1], so consumers pay more for imported goods and foreign holidays [1]; if firms pass on higher import costs, the general price level may rise, reducing real incomes [1]. [3]

10. Incomes fall in those countries, so they buy fewer UK exports [1]; UK exporters produce less [1] and need fewer workers, so unemployment rises [1]. [3]

11. Benefits:

• Its exports become cheaper abroad [1], so foreign sales may rise [1], raising revenue and possibly profit [1].
• Half of output is exported, so the gain on that side is large [1].

Costs:

• Imported parts cost more in pounds [1], raising costs [1].
• If buyers abroad do not respond much to lower prices, the extra sales may be small [1].

Judgement: Whether the firm gains depends on the balance between higher export sales and higher parts costs; with half of output exported it may gain overall, but only if imported parts are a smaller share of its costs [1] [1]. [9]

Where marks are usually lost

• Reversing the effects of an appreciation and a depreciation.
• Multiplying instead of dividing when converting a foreign price into pounds.
• Not finishing the chain: “the pound falls” without explaining what happens to export prices or sales.
• Ignoring that a firm can be both an exporter and an importer.

Frequently asked questions

How do you convert a foreign price into pounds? Divide the foreign price by the exchange rate. Going from pounds to a foreign currency, multiply; going from a foreign currency to pounds, divide.

What is a common mistake with appreciation and depreciation? Reversing their effects. A strong pound makes imports cheaper and exports dearer; a weak pound does the opposite.

How far should I take an exchange rate chain of reasoning? Finish the chain: say what happens to export or import prices and then to sales, rather than stopping at the pound falls.

Can a firm be affected by the exchange rate as both an exporter and an importer? Yes. A firm that exports and also buys imported materials gains on one side and loses on the other when the exchange rate changes, so consider both.

Next steps

• Revise with the revision notes and re-read the study guide.
• Check coverage on the checklist and see the AQA GCSE Economics hub.
• Take one of the free 10-minute diagnostics.

Official syllabus

AQA GCSE Economics (8136) specification, for first teaching from September 2017, published by AQA: sections 3.2.4.1 Why countries trade and the importance of international trade to the UK and 3.2.4.2 Exchange rates.