Edexcel IGCSE Business: Business and the international economy (4BS1) – Revision Notes

These revision notes condense Topic 1, section 1.5 “Business and the international economy” (points 1.5.1 to 1.5.4) of the Pearson Edexcel International GCSE in Business (4BS1) specification, Issue 2, February 2026. For full explanations and worked examples, read the study guide first. Then try the practice questions.

Course links: the 4BS1 Business hub, the printable checklist and the free diagnostics. The specification says both Paper 1 (small business, up to 49 employees) and Paper 2 (large business, more than 250 employees) can draw on all the content, so revise this section for both.

Key definitions

These definitions are standard knowledge. The specification does not give wording for them.

Term	Meaning
Globalisation	Markets, businesses and economies becoming more closely linked, with goods, services, money and ideas crossing borders more easily
Multinational	A business with operations in more than one country
Host country	The country where a multinational locates an operation
Exchange rate	The price of one currency in terms of another
Importer	A business that buys goods or services from abroad
Exporter	A business that sells goods or services abroad
International competitiveness	How attractive a country’s or firm’s products are to overseas buyers compared with rivals
Strengthens / weakens	A currency buys more / less of another currency than before

1.5.1 Globalisation at a glance

Opportunities	Threats
Larger markets and more sales revenue	More competition from overseas rivals in the home market
Cheaper materials, components or labour	Dependence on overseas suppliers
Economies of scale from larger output	Exchange rate risk
Risk spread across several markets	Differences in culture, language and rules
	Pressure on prices and margins

Method for a globalisation answer:

1. Define the term in a clause.
2. Pick the one or two points that fit this business (small or large, importer or exporter).
3. Explain the chain: cause, effect on the business, effect on profit or sales.
4. If asked to evaluate, say which side is bigger and why.

1.5.2 Multinationals at a glance

Why a business becomes a multinational:

• new markets and higher sales revenue
• lower costs abroad
• producing inside a market can avoid tariffs
• economies of scale
• spread risk across economies
• use of a global brand

Benefits to the host country and/or economy	Possible drawbacks to the host country and/or economy
Jobs and wages	Profits sent abroad to owners
Tax payments	Local firms may close
Investment	Jobs insecure if production moves
Skills and technology	Low pay or poor conditions
Consumer choice and lower prices	Environmental damage
Local suppliers gain a customer	Influence over government
Possible exports	Cultural change and dependence on one employer

Must-know distinction: a benefit to the multinational (for example lower costs) is not automatically a benefit to the host country. Always say who gains.

1.5.3 Exchange rate calculations

The specification does not state a formula or rule. The multiply and divide rule below is standard knowledge, not specification wording:

Task	Operation (rate: £1 = foreign units)
Home currency into foreign	Multiply by the rate
Foreign currency into home	Divide by the rate

Steps:

1. Write the rate and which currency is £1 (the base).
2. Decide the direction: home to foreign (multiply), foreign to home (divide).
3. Calculate and label the currency.
4. Sense check: the currency with the larger number per £1 gives bigger figures.

Worked reminder: £1 = USD 1.60. A £35 item costs 35 × 1.60 = USD 56. A bill of USD 840 is 840 ÷ 1.60 = £525.

1.5.4 Exchange rate changes

Effect of a stronger home currency	Effect of a weaker home currency
Exports dearer abroad, competitiveness falls	Exports cheaper abroad, competitiveness rises
Imports cheaper in home currency	Imports dearer in home currency
Exporters: sales or earnings per sale fall	Exporters: sales or earnings per sale rise
Importers: costs fall, margins may improve	Importers: costs rise, margins may shrink

Worked reminder: a £50 product is priced in pounds. At £1 = USD 1.30 the US price is 50 × 1.30 = USD 65. If the pound weakens to £1 = USD 1.10, the US price is 50 × 1.10 = USD 55. A fall of USD 10 makes the product easier to sell in the US.

Linking points (standard knowledge, not specification wording):

• A firm that both imports and exports must weigh the two effects.
• Price contracts agreed in advance can delay the effect.
• A business may absorb a change in its margin rather than change its price.
• Competitiveness also depends on quality, brand and service, not only on price.

Quick links between points

• Globalisation (1.5.1) is the background. It explains why multinationals (1.5.2) grow and why more businesses trade in foreign currencies (1.5.3 and 1.5.4).
• Exchange rate risk is both a threat of globalisation and the reason section 1.5.4 matters.
• A multinational that earns in one currency and pays costs in another is exposed to rate changes in both directions.
• The same host-country effect can be a benefit or a drawback depending on scale and timing, for example new jobs against closing local firms.

Writing the answer

Match your response to the command word in the question.

Command word	What to write
State / identify / define	A short answer, no explanation needed
Calculate	The rate, the operation, the result and the currency
Explain / analyse	A point, then the chain of cause and effect, tied to the business
Evaluate / justify / recommend	Both sides, a weighed judgement, and a reason that fits the business

Short model for an explain answer: “If the pound strengthens, a UK exporter’s goods cost more in dollars. US buyers may switch to cheaper suppliers, so the exporter’s sales fall.”

Short model for a judgement: “Becoming a multinational gives the firm access to a larger market, but the cost of building abroad is high. Overall it is worthwhile only if overseas demand is likely to be large enough to repay that cost.”

Quick self-test

1. Define globalisation.
2. State two opportunities of globalisation for a business.
3. State two threats of globalisation for a business.
4. Give two benefits to a business of becoming a multinational.
5. Give one benefit and one drawback of a multinational for the host country.
6. At £1 = USD 1.60, convert £35 into US dollars.
7. At £1 = EUR 1.10, convert EUR 5,500 into pounds.
8. A UK exporter prices a part at £50. The pound weakens from £1 = USD 1.30 to £1 = USD 1.10. Show what happens to the US dollar price.
9. A UK importer pays EUR 6,600 for stock. The rate moves from £1 = EUR 1.10 to £1 = EUR 1.32. Calculate the change in the pound cost.
10. Explain why a weaker pound might harm a UK business that imports most of its materials.

Answers

1. The process by which markets, businesses and economies become more closely linked, so goods, services, money and ideas cross borders more easily.
2. Any two of: larger markets, lower costs, economies of scale, spreading risk.
3. Any two of: more overseas competition at home, dependence on overseas suppliers, exchange rate risk, cultural and legal differences.
4. Any two of: new markets, lower costs, avoiding trade barriers, economies of scale, spreading risk.
5. Benefit: for example jobs and wages. Drawback: for example profits leaving the country, or local firms closing.
6. 35 × 1.60 = USD 56.
7. 5,500 ÷ 1.10 = £5,000.
8. 50 × 1.30 = USD 65 before; 50 × 1.10 = USD 55 after. The US price falls by USD 10.
9. At 1.10: 6,600 ÷ 1.10 = £6,000. At 1.32: 6,600 ÷ 1.32 = £5,000. The cost falls by £1,000 (the pound has strengthened).
10. Each pound buys less foreign currency, so imported materials cost more in pounds. Costs rise, so profit falls unless the business raises its prices, and a price rise could lose customers.

Where marks are usually lost

• Giving a list of opportunities or threats with no link to the named business.
• Using “it” or “they” without making clear whether the business or the host country is meant.
• Muddling the benefits to a multinational with the benefits to the host country.
• Multiplying instead of dividing when converting into the home currency.
• Leaving out the currency label from a final answer.
• Stating that a stronger currency is “good” or “bad” without saying for whom.
• Missing the exporter and importer effects on a business that does both.
• Writing a long one-sided answer to an evaluate or justify question and ending without a judgement.
• Repeating the same point in different words instead of adding a second distinct point.

Next steps

Go back to the study guide for any gap, work through the practice questions, and tick off progress on the checklist. Use the 4BS1 Business hub for other topics, and the free diagnostics to find weak areas.

Frequently asked questions

What is an exchange rate? An exchange rate is the price of one currency in terms of another. It tells you how many units of a foreign currency one unit of your own currency buys.

How does a stronger pound affect exporters and importers? A stronger home currency makes exports dearer abroad, so exporters may lose sales or profit, while imports cost less in home currency, so importers’ costs fall. A weaker currency does the reverse.

What are the benefits of becoming a multinational? A business can gain access to new markets, lower costs, economies of scale and the chance to spread risk, and producing inside a market can avoid some trade barriers such as tariffs.

Why might an exchange rate change not affect a business straight away? The business may have agreed a price in advance, or it may choose to absorb the change in its profit margin instead of changing its price.

Official syllabus

Pearson Edexcel International GCSE in Business (4BS1), Specification, Issue 2, February 2026, published by Pearson Education Limited. Topic 1: Business activity and influences on business, section 1.5 “Business and the international economy”, points 1.5.1 to 1.5.4.