International trade and trade balances
Explain the gains and frictions of cross-border trade, and calculate and interpret a simple balance of trade or balance of payments figure.
Section Paper 2 · Written
Exam scope and assessment notes
This original lesson maps Cambridge IGCSE Commerce 0715 for exams in 2028 and 2029. Examples, businesses, figures and practice questions are original StudyForA material, not Cambridge questions, mark schemes or endorsements. Practice supports the knowledge, application, data interpretation, analysis and evaluation skills in the syllabus; it is self-checked and does not produce an official Cambridge grade. Full timed papers, examination-centre entry advice and review by a qualified Commerce teacher remain outside this pathway.
Before you begin
- No prior Commerce study is assumed. Work from the facts in each scenario and show calculations before making a commercial judgement.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
What does a negative goods balance indicate?
What you will learn
- Explain possible benefits of international trade to a country and challenges faced by exporters or importers.
- Distinguish balance of trade from balance of payments and calculate or interpret balances from supplied figures.
- Explain how commercial activity can affect a trade or payments balance without claiming one statistic describes the whole economy.
Trade expands choice and adds coordination challenges
International trade can widen consumer choice, lower some import costs, raise living standards, attract investment and create jobs. Benefits depend on what is traded, who gains, local capacity and the terms of trade.
Exporters and importers can face distance, language, payment, documentation, transport, customs duties, non-payment, currency changes, competition and different legal systems. Risk can be reduced by suitable contracts, insurance, verified partners, clear documents and reliable payment arrangements, but not eliminated.
Read the balance being measured
The balance of trade compares the value of exports and imports of goods under the measure provided. For a simple calculation, balance of trade = goods exports − goods imports. A positive result is a surplus; a negative result is a deficit. In this context, services bought from or sold to other countries are sometimes called invisible imports or exports.
The balance of payments is broader than visible goods trade and can include international services and other cross-border transactions. In a simplified Commerce question, use only the categories and calculation convention supplied: for example, compare the stated export credits with import debits, then interpret the resulting surplus or deficit in that context. Do not claim this simplified subtotal is the complete national account. Changes in imports, exports, services and other flows can affect the wider position.
Sources for this lesson
Pause and explain
Which measure is broader than goods balance of trade?
Worked example
A country exports $84 million of goods and imports $97 million of goods in one year. Calculate the balance of trade in goods and interpret it.
Show the worked solution
- Use exports minus imports: 84 − 97.
- The result is −13 million.
- State that this is a $13 million deficit in goods trade for the stated period.
Answer The balance is −$13 million, so the country has a $13 million deficit in goods trade for that year. This figure does not by itself establish the country's full balance of payments or economic wellbeing.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A country exports $124m of goods and imports $108m. Calculate the balance of trade and explain what the sign means.
Give me a hint
Subtract imports from exports; keep the unit.
Compare my reasoning
- Calculate 124 − 108 = 16.
- The result is positive, so exports of goods exceed imports.
- Label the answer as a $16m surplus for the period.
The balance of trade in goods is $16m, a surplus for the stated period. It does not measure services or every other international transaction.
Look for these in your work
- Correct subtraction
- Sign interpreted
- Scope limited to goods
A country earns $75m from goods exports and $26m from service exports. It spends $90m on goods imports and $18m on services from abroad. Calculate the simplified combined trade-and-services balance from these figures.
Give me a hint
Add the stated exports, add the stated imports, then subtract imports from exports.
Compare my reasoning
- Total stated export receipts = 75 + 26 = $101m.
- Total stated import payments = 90 + 18 = $108m.
- The supplied subtotal is 101 − 108 = −$7m, a deficit on the stated figures; other transactions are not included.
The simplified balance on the supplied goods and services figures is −$7m: stated payments exceed receipts by $7m. This is not the full balance of payments because the question gives no other cross-border transactions.
Look for these in your work
- Categories added correctly
- Subtraction and sign interpreted
- Scope limited to supplied figures
An importer worries about a supplier's different currency, distant transport and a possible late delivery. Recommend two precautions and explain the risk each addresses.
Give me a hint
Use a measure for currency, contract or delivery risk; state any cost or limit.
Compare my reasoning
- Agree a clear contract for price, currency, delivery terms and remedies before ordering.
- Consider an appropriate foreign-exchange arrangement or insurance if proportionate to the exposure.
- Check the supplier and route, use suitable transport documents and track shipment milestones.
The buyer can agree clear currency and delivery terms, verify the supplier and monitor the shipment. Depending on its exposure, it may use currency arrangements or insurance. Each precaution has a cost and cannot remove all legal, transport or non-payment risk.
Look for these in your work
- Two relevant controls
- Risk link explained
- Limits or costs acknowledged
Common mistakes
- Reversing exports minus imports
- Calling a deficit automatically harmful
- Equating balance of trade with the full balance of payments
- Ignoring the period and unit in supplied data
What can you explain now?
Exports are $52m and imports are $49m. What is the balance of trade in goods?
Compare with the explanation
$3m surplus
Exports minus imports = 52 − 49 = $3m; a positive goods balance is a surplus.
After trying it yourself, choose your next review. This is your self-assessment.
Your review choice appears on Today. Sign in to sync it across devices.
Make it stick
Write the formula for a simple goods balance of trade and say why it is not the whole balance of payments.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.