Explain the concept of international trade clearly using current economic conditions.
Analyze international trade data to determine the international balance of payments accurately.
These skills will help you understand how countries interact economically and why international trade is vital for global business success.
Compiled by: Joan Cherono
International trade forms a cornerstone of modern business management, enabling firms in Kenya to access goods, services, and markets beyond national borders. For business managers, understanding international trade dynamics is essential for strategic decision-making, risk management, and capitalising on global opportunities. This chapter explores the foundational concepts of international trade, focusing on how Kenyan enterprises engage in cross-border commerce and navigate the complexities of global markets.
10.1 Concept of international trade
International trade is the exchange of goods and services across national boundaries. It allows countries and businesses to specialise in what they produce at the lowest opportunity cost and to buy the rest from abroad. For Kenya it is a source of growth: export earnings from tea, coffee and horticulture pay for imported machinery, fuel and other goods that the country does not produce at all or produces at higher cost. Business managers need to understand the principles of international trade to choose suppliers, set prices and decide when to enter foreign markets.
10.1.1 Meaning
International trade refers to the buying and selling of goods and services between countries, and it includes both exports and imports. Exports are goods and services sold to buyers in other countries. Imports are goods and services bought from sellers in other countries. It allows countries to obtain products that are not available at home or that can be obtained more cheaply from abroad. Example: A Kenyan manufacturer may import machinery from Germany and export processed tea to buyers in the European Union.
Characteristics of international trade
Cross-border transactions: Exchanges cross national borders, which distinguishes them from domestic trade within one country.
Diverse currencies and regulations: Traders deal with different currencies, legal systems and trade policies, which makes transactions more complex than local trade.
Involvement of multiple stakeholders: Governments, exporters, importers, transporters, customs officers, insurers and trade intermediaries all take part in making a transaction possible.
Influence of trade agreements: Bilateral and multilateral trade agreements shape the terms of trade by setting tariffs, quotas and standards.
Risk factors: Political instability, exchange rate changes and transport delays add risks that a business must manage.
Forms of international trade
International trade takes different forms, depending on what is exchanged and how.
Merchandise trade: The physical exchange of goods, such as agricultural produce, manufactured products and raw materials. Kenyan tea and coffee exports are examples.
Service trade: Cross-border provision of services such as tourism, transport, insurance, software and education. A tour operator hosting foreign visitors in Kenya earns income from the export of a service, even though nothing is shipped.
Licensing and franchising: A firm allows a foreign company to produce or sell its products under a licence or franchise agreement, which gives market entry without direct investment.
Foreign direct investment (FDI): A firm sets up or buys business operations in another country, for example a Kenyan retail firm opening outlets elsewhere in East Africa.
Countertrade: Goods or services are exchanged for other goods or services, with little or no money changing hands. It includes barter, compensation and buy-back deals and is sometimes used with countries that have little foreign currency.
10.1.2 Advantages and disadvantages
International trade widens the market and the supply of inputs open to a country and its firms, but it also exposes them to risks that they do not face in purely local trade. A manager weighs both sides before committing to import or export plans.
Advantages of international trade
Market expansion: Access to foreign markets lets a firm sell more than the home market can absorb, which raises revenue and allows production on a larger scale at a lower cost per unit.
Cost reduction: Importing inputs or finished goods from countries that produce them more cheaply can lower costs and improve profit margins.
Access to technology and skills: Imports of machinery and contact with foreign partners bring new technology and know-how that improve productivity and quality.
Risk diversification: Selling in several markets reduces the dependence on any single economy, so a downturn at home does not remove all sales.
Greater variety and choice: Consumers and businesses can choose from a wider range of goods and services than local production offers, often at lower prices because of competition.
Foreign exchange earnings: Exports earn the foreign currency needed to pay for essential imports such as fuel and capital goods.
Disadvantages of international trade
Dependence on foreign supply and demand: A country or firm that relies on imported inputs or on a few export markets is hurt when supply is cut or when buyers reduce their orders.
Exposure to price and exchange rate changes: World prices and exchange rates change often, which can reduce export earnings or raise the cost of imports without warning.
Competition that harms local producers: Cheaper imports can force local firms, especially new and small ones, out of business and reduce local jobs.
Dumping and unfair practices: Foreign producers may sell at very low prices in order to win a market, which damages local industries.
Over-specialisation: A country that depends on a few primary exports, such as farm produce, is vulnerable to bad weather and to falling world prices for those products.
Standards and barriers: Exporters must meet quality, safety and labelling standards in each market, and tariffs and other barriers may make their goods dearer abroad.
Pressure on foreign exchange reserves: If imports grow faster than exports, the country uses up foreign currency, and the value of its currency may fall.
Theories explaining international trade
Economic theories explain why countries trade and how they gain from it.
Absolute advantage: Adam Smith argued that a country should specialise in goods that it can produce using fewer resources than other countries and trade for the rest, so that both gain.
Comparative advantage: David Ricardo showed that a country gains by specialising in the good with the lowest opportunity cost, even if another country can produce everything more efficiently.
Heckscher-Ohlin theory: Countries export goods that use intensively the factors in which they are well supplied, such as labour, land or capital. A country with plentiful labour relative to capital tends to export labour-intensive goods.
Product life cycle theory: Products pass through stages from introduction to decline, and production of mature products tends to move to countries where it costs less.
New trade theory: Economies of scale and network effects explain why countries trade similar products with each other and why large firms shape trade patterns.
Example: Two hypothetical countries make tea and cloth. Country A needs 2 labour days to make one unit of tea and 3 to make one unit of cloth. Country B needs 6 labour days for one unit of tea and 4 for one unit of cloth. Country A is better at making both goods, so it has the absolute advantage in both.
Country
Opportunity cost of 1 unit of tea
Opportunity cost of 1 unit of cloth
Country A
2 ÷ 3 = 0.67 units of cloth
3 ÷ 2 = 1.5 units of tea
Country B
6 ÷ 4 = 1.5 units of cloth
4 ÷ 6 = 0.67 units of tea
Country A has the lower opportunity cost in tea, and Country B has the lower opportunity cost in cloth. If each sells one unit of its own good for one unit of the other, Country A gets a unit of cloth for one unit of tea, when making it at home would cost 1.5 units of tea. Country B gets a unit of tea for one unit of cloth, when making it at home would cost 1.5 units of cloth. Both gain even though A is the more efficient producer of both goods.
10.1.3 International balance of payments
The balance of payments is a systematic record of all economic transactions between the residents of a country and the rest of the world over a period, usually a year. It shows how much the country earned from abroad, how much it paid abroad and how the difference was financed. A country's central bank, in Kenya the Central Bank of Kenya, and its government use it to judge the strength of the external economy and the pressure on the exchange rate.
Components of the balance of payments
The record is divided into three main accounts.
Current account: This records trade in goods, trade in services, primary income and secondary income. Goods trade covers exports and imports of physical products. Services trade covers items such as tourism, transport and insurance. Primary income covers investment income such as profits, interest and dividends, together with wages paid across borders. Secondary income covers one-way transfers such as remittances from relatives abroad and grants.
Capital account: This records capital transfers, such as debt forgiveness, and the buying and selling of non-produced assets such as patents and leases between countries. Its size is normally small.
Financial account: This records investment and lending flows. It includes foreign direct investment, portfolio investment in shares and bonds, loans and the changes in the country's official foreign exchange reserves.
Example: In the hypothetical economy, Ksh figures are in billions and inflows of money are shown as positive and outflows as negative.
Item
Ksh billion
Exports of goods
700
Imports of goods
−1,000
Balance on goods
−300
Balance on services
+150
Net primary income
−60
Net secondary income (including remittances)
+150
Current account balance
−60
Capital account balance
+10
Financial account: net inflow (foreign investment, borrowing, drawing on reserves)
+50
Overall balance
0
The current account balance is −300 + 150 − 60 + 150 = −Ksh 60 billion. Adding the capital account gives −60 + 10 = −Ksh 50 billion, which must be financed by a net inflow of foreign money of Ksh 50 billion through the financial account. The overall balance is −60 + 10 + 50 = 0. Official publications may show the financial account with the opposite sign convention, so always check the notes to the table.
Surplus, deficit and balance
Because every transaction is recorded twice, the balance of payments always balances as an accounting statement. A deficit or a surplus therefore refers to one part, usually the current account. A current account deficit means that the country spends more abroad than it earns, and it has to be matched by borrowing, foreign investment or a fall in reserves. A current account surplus means the country earns more than it spends abroad and adds to its reserves or lends abroad.
Effects of a persistent deficit
Currency depreciation: Demand for foreign currency, which is needed to pay for imports, exceeds its supply, so the value of the shilling tends to fall.
Higher import costs and prices: A weaker shilling makes imported fuel, machinery and raw materials dearer, and this can feed inflation.
Falling reserves: The central bank may sell foreign exchange to support the shilling, and reserves can run low if the deficit continues.
Rising external debt: If the gap is financed by borrowing, the country must later use export earnings to pay interest and repay the loans.
Loss of confidence: Investors and lenders may demand higher returns or withdraw funds if they doubt that the country can pay.
Measures to correct a deficit
Export promotion: Support for exporters, new markets and value addition increases foreign earnings.
Import substitution: Encouraging local production of goods now imported reduces the demand for foreign currency.
Exchange rate adjustment: A lower exchange rate makes exports cheaper abroad and imports dearer at home.
Tariffs and quotas: Limits on imports reduce the import bill, although they may invite retaliation and raise domestic prices.
Attracting capital and remittances: Policies that welcome foreign investment and make it easier for citizens abroad to send money home raise financial inflows.
10.1.4 International Balance of trade
The balance of trade is the difference between the value of a country's exports of goods and the value of its imports of goods over a period.
Balance of trade = value of exports − value of imports
It is a major and highly visible part of the current account. Trade in services is recorded separately, although some publications combine goods and services and call the result the balance of trade in goods and services. The balance of trade is therefore only one part of the balance of payments, which also includes services, income, transfers and capital movements.
Surplus, deficit and balanced trade
Trade surplus: Exports are greater than imports, so the balance is positive. The country earns more foreign currency than it spends on goods.
Trade deficit: Imports are greater than exports, so the balance is negative. The country needs to finance the gap from other sources.
Balanced trade: Exports equal imports, so the balance is zero.
Example: In a second hypothetical economy, separate from the one in the balance of payments example, the goods exported in a year are worth: tea Ksh 90 billion, horticulture Ksh 80 billion, coffee Ksh 20 billion and manufactured goods Ksh 110 billion. The total is 90 + 80 + 20 + 110 = Ksh 300 billion. Goods imported are worth: machinery Ksh 120 billion, fuel Ksh 140 billion, vehicles Ksh 60 billion and other goods Ksh 80 billion, a total of 120 + 140 + 60 + 80 = Ksh 400 billion.
Balance of trade = 300 − 400 = −Ksh 100 billion, which is a trade deficit.
Exports cover 300 ÷ 400 × 100 = 75% of the import bill.
Factors affecting the balance of trade
Exchange rate: A weaker shilling makes exports cheaper for foreign buyers and imports dearer for local buyers, which tends to improve the balance over time.
Prices and costs of production: Goods that cost less to produce than competing goods abroad sell better in foreign markets.
Income and demand abroad and at home: Growing incomes in trading partners raise demand for exports, and rising incomes at home raise demand for imports.
Trade policy: Tariffs, quotas, standards and trade agreements make exporting and importing cheaper or harder.
Productivity and quality: Better quality and reliable supply win export orders and reduce the need to import substitutes.
Transport and infrastructure: Efficient ports, roads and customs processing lower the cost of delivering goods.
Implications for a business manager
An importer is helped by a stronger shilling because imports cost less, while an exporter is helped by a weaker shilling because its goods are cheaper abroad. A persistent trade deficit puts pressure on the exchange rate and may lead to import restrictions or higher import costs, and managers should plan for such changes when they set prices and choose suppliers.
10.1.5 International Terms of trade
The terms of trade show how much a country has to give up in exports to pay for a given quantity of imports. They are usually measured as a price ratio. The net barter terms of trade are the ratio of an index of export prices to an index of import prices, multiplied by 100.
Terms of trade = (export price index ÷ import price index) × 100
Both price indices start at 100 in a base year. A rise in the figure means that export prices have risen relative to import prices, and the terms of trade have improved. A fall means that they have deteriorated.
Example: In the base year both indices are 100, so the terms of trade are 100. Two years later the export price index is 110 and the import price index is 125.
Terms of trade = (110 ÷ 125) × 100 = 88.
The terms of trade have deteriorated by 12 points, which means each unit of exports now pays for only 88% of the imports it paid for before.
Example: In the base year a country could buy one machine with 20 tonnes of tea. Later the same machine costs 25 tonnes of tea. The terms of trade have worsened to 20 ÷ 25 × 100 = 80, because the country has to sell more tea to pay for the same import.
Example: If the export price index rises to 120 while the import price index stays at 100, the terms of trade are (120 ÷ 100) × 100 = 120, an improvement.
Factors that change the terms of trade
World commodity prices: Countries that export farm produce and raw materials and import manufactured goods see their terms of trade change when world prices for those goods move.
Exchange rates: A change in the value of the shilling affects the local price of imports and the foreign price of exports.
Inflation at home and abroad: Faster inflation in a trading partner raises the prices of the goods it sells to us, and faster inflation at home raises the prices of the goods we sell to it. The terms of trade change when the two price levels move at different speeds.
Demand and supply conditions: A world shortage raises prices of the goods affected, and a surplus lowers them.
Productivity and product quality: Improvements in quality and the addition of value to exports allow a country to command higher prices.
Trade policy: Tariffs, subsidies and trade agreements change the prices at which goods are traded.
Income terms of trade
The terms of trade tell only about prices. The income terms of trade also take account of the volume of exports sold, to show the total import-buying power of export earnings.
Income terms of trade = terms of trade × export volume index ÷ 100
Example: If the terms of trade are 88 and the export volume index is 125, the income terms of trade are 88 × 125 ÷ 100 = 110. Export earnings buy more imports than in the base year even though prices moved against the country, because the volume of exports sold rose.
Effects of changes in the terms of trade
Improvement: Exporters earn more per unit sold, and the country can buy more imports for the same volume of exports. Import costs fall relative to export income, and this supports profits and living standards.
Deterioration: Exporters earn less relative to what they pay for imported inputs and machinery, so profit margins fall. The country must export more to pay for the same imports, and it may run a bigger trade deficit.
A manager reduces the effects of a deteriorating trend by adding value to exports, finding new markets and buying inputs from several suppliers.
Practice Questions
Define international trade and explain five of its distinguishing characteristics. (10 marks)
Discuss five reasons why international trade is important for business managers in Kenya. (10 marks)
Compare and contrast the absolute advantage and comparative advantage theories of international trade. (10 marks)
Identify and explain four major forms of international trade with examples relevant to Kenyan businesses. (10 marks)
Chapter Summary
International trade involves the exchange of goods and services across national borders, enabling countries to access products not available domestically and to specialize in what they produce efficiently. The chapter explored the meaning of international trade and highlighted its advantages such as increased market access, economic growth, and diversification, alongside disadvantages including exposure to global market fluctuations and dependency risks. It examined the international balance of payments, a record of all economic transactions between residents of a country and the rest of the world, which is crucial for understanding a nation’s financial position. The international balance of trade, a component of the balance of payments, was discussed as the difference between the value of exports and imports, influencing economic stability. Finally, the chapter covered international terms of trade, which measure the relative prices of exports in terms of imports and affect a country’s purchasing power on the global market. Understanding these concepts is essential for grasping how countries engage economically and the implications of their trade policies.
Define international trade and explain its significance for Kenyan businesses. (4 marks)
Identify and explain three advantages of international trade for Kenyan exporters. (6 marks)
List and discuss three disadvantages that Kenyan importers might face due to international trade. (6 marks)
What is the international balance of payments? Outline its main components. (5 marks)
Differentiate between the international balance of payments and the international balance of trade. (4 marks)
Explain the meaning of international terms of trade and how it affects Kenya’s economy. (5 marks)
Describe how a deficit in the balance of payments can impact Kenya’s currency value. (4 marks)
Multiple Choice: Which of the following is NOT a component of the balance of payments?
a) Current account
b) Capital account
c) Retail sales account
d) Financial account (2 marks)
Multiple Choice: An improvement in Kenya’s terms of trade means:
a) Kenya exports less and imports more
b) Kenya gets more imports for each unit of exports
c) Kenya pays more for imports relative to exports
d) Kenya earns more from exports relative to the cost of imports (2 marks)
Discuss the role of international trade in enhancing competitiveness among Kenyan firms in the East African Community (EAC). (5 marks)
Show Answers
International trade is the exchange of goods and services across national borders. It is significant for Kenyan businesses as it expands markets beyond domestic borders, increases revenue opportunities, and allows access to diverse inputs and technology.
Advantages include:
Access to larger markets, enabling economies of scale;
Diversification of products and revenue streams;
Acquisition of advanced technology and inputs for production.
Disadvantages include:
Exposure to global competition which may hurt local industries;
Vulnerability to exchange rate fluctuations increasing costs;
Dependence on foreign markets which may be unstable.
The international balance of payments records all economic transactions between residents of Kenya and the rest of the world. Its components are:
Current account (trade in goods/services, income, transfers);
Capital account (capital transfers, acquisition/disposal of non-produced assets);
Balance of payments is a comprehensive record of all transactions, while balance of trade focuses only on the difference between exports and imports of goods and services.
International terms of trade measure the ratio of export prices to import prices. It affects Kenya’s economy by indicating how many imports can be purchased per unit of exports, influencing purchasing power and economic welfare.
A deficit can lead to depreciation of the Kenyan shilling as demand for foreign currency rises, increasing import costs and inflation.
c) Retail sales account
d) Kenya earns more from exports relative to the cost of imports
International trade pressures Kenyan firms to improve quality, reduce costs, and innovate to remain competitive within the EAC, fostering growth and regional integration.
B. Oral Assessment
Discuss how fluctuations in Kenya’s international balance of payments can affect business decisions in the manufacturing sector.
Explain the implications of unfavorable international terms of trade for Kenyan agricultural exporters and suggest strategies to mitigate these effects.
Answer Guide
Question 1 key points:
Impact on exchange rates influencing import costs for raw materials;
Potential changes in foreign investment flows affecting capital availability;
Uncertainty in international payments may affect pricing and contracts.
Question 2 key points:
Reduced earnings from exports leading to lower profitability;
Difficulty in affording imported inputs and technology;
Strategies include product diversification, value addition, and entering new markets.
C. Case Study
A farm produce business exports tea to global markets and experiences fluctuations in international prices and currency exchange rates.
Tasks:
a) Analyze how changes in international terms of trade could affect the business’s export revenue. (6 marks)
b) Examine the potential impact of a persistent deficit in Kenya’s balance of payments on the business’s operations. (6 marks)
c) Recommend measures the business could implement to mitigate risks associated with international trade disadvantages. (8 marks)
Suggested Approach
a) Changes in international terms of trade affect the relative prices the business receives for tea exports compared to the cost of imported inputs and services. An improvement means the business can buy more imports per unit of tea sold, increasing profitability. Conversely, deterioration reduces export earnings and purchasing power.
b) A persistent balance of payments deficit may lead to depreciation of the Kenyan shilling, raising costs for imported agricultural inputs and equipment the business relies on. It could also cause reduced foreign investor confidence, limiting access to capital for expansion.
c) The business can diversify export markets to reduce dependence on any single market; invest in value addition to improve product quality and prices; hedge against currency risks through forward contracts; and collaborate with government initiatives to improve trade infrastructure and negotiate better trade terms.
Chapter Examination Questions
🔒 PDFDownload these examination questions, with worked answers
SECTION A (40 Marks) - Answer ALL Questions
Define international trade and explain its significance for a Kenyan business such as a tea exporting company. (4 marks)
Identify and explain two advantages and two disadvantages of international trade for Kenyan manufacturers. (4 marks)
What is meant by the international balance of payments? Illustrate how a persistent deficit might affect Kenya’s economy. (4 marks)
Differentiate between the international balance of payments and the international balance of trade. (4 marks)
Explain the concept of international terms of trade and discuss one factor that can influence it in Kenya’s import-export sector. (4 marks)
How can international trade contribute to economic growth in Kenya? Give two examples. (4 marks)
Discuss two challenges Kenyan businesses face when engaging in international trade. (4 marks)
Explain how fluctuations in international terms of trade can impact the profitability of Kenyan exporters. (4 marks)
Describe the role of the Central Bank of Kenya in managing the country’s international balance of payments. (4 marks)
Explain why a country like Kenya might experience a trade surplus or trade deficit and the potential consequences of each. (4 marks)
Section A - Answers
International trade is the exchange of goods and services across national borders. For a Kenyan tea exporter, it provides access to global markets, increasing sales and foreign exchange earnings.
Advantages: Access to larger markets increases sales; availability of cheaper imported inputs reduces production costs. Disadvantages: Exposure to foreign competition can threaten local industries; exchange rate volatility affects profitability.
The international balance of payments records all economic transactions between Kenya and other countries. A persistent deficit means Kenya is spending more on imports than earning from exports, potentially leading to currency depreciation and reduced foreign reserves.
The balance of payments includes all transactions (goods, services, capital flows), while the balance of trade refers only to the difference between exports and imports of goods and services.
International terms of trade measure the ratio of export prices to import prices. Factors influencing it include changes in global commodity prices, such as fluctuations in coffee prices affecting Kenya’s export earnings.
Trade enables Kenya to access new technologies and markets, boosting productivity and employment. For example, exporting horticultural products and importing machinery for manufacturing.
Challenges include non-tariff barriers like stringent quality standards and high transport costs due to poor infrastructure.
If terms of trade worsen (export prices fall relative to import prices), Kenyan exporters earn less revenue, reducing profit margins and investment capacity.
The Central Bank manages foreign exchange reserves, intervenes in the forex market to stabilize the shilling, and monitors external accounts to maintain balance of payments stability.
Trade surplus occurs when exports exceed imports, increasing foreign reserves; a deficit means more imports, possibly leading to borrowing or currency depreciation, affecting economic stability.
SECTION B (60 Marks) - Answer any TWO Questions
Question 11 (Compulsory - 20 marks)
The Kenya Flower Council has experienced fluctuating export revenues due to changes in global demand and international trade policies.
a) Explain how international terms of trade affect the Kenya Flower Council’s export performance. (10 marks)
b) Discuss strategies that the Kenya Flower Council could adopt to mitigate the disadvantages of international trade. (10 marks)
Question 12 (20 marks)
Evaluate the impact of a persistent international balance of payments deficit on Kenya’s economic development and suggest policy measures to address it.
Question 13 (20 marks)
Analyze the advantages and disadvantages of international trade for small and medium enterprises (SMEs) in Kenya, using examples from the retail or manufacturing sectors.
Question 14 (20 marks)
Discuss the relationship between international balance of trade and foreign exchange rates in Kenya, and explain how this relationship influences business decisions for importers and exporters.
Section B - Answers
Question 11
a) The Kenya Flower Council’s export performance depends on international terms of trade, which is the ratio of export prices to import prices. If global flower prices decline relative to the cost of imported inputs like fertilizers, the Council's profitability decreases. Changes in trade policies such as tariffs or phytosanitary regulations in importing countries also affect terms of trade by altering market access or costs.
b) Strategies include diversifying export markets to reduce dependence on a few countries, improving product quality to meet international standards, engaging in value addition to increase export prices, and using hedging instruments to manage foreign exchange risks.
Question 12
A persistent balance of payments deficit signals that Kenya imports more than it exports, leading to depletion of foreign reserves and increased external borrowing. This can cause currency depreciation, raising import costs and inflation, which negatively affects businesses and consumers. Policy measures include promoting export diversification, improving competitiveness through infrastructure investments, encouraging import substitution industries, and negotiating favorable trade agreements.
Question 13
Advantages for Kenyan SMEs include access to larger markets, opportunities for technology transfer, and increased revenue streams. Disadvantages include exposure to international competition, challenges in meeting export quality standards, and vulnerability to exchange rate fluctuations. For example, a Nairobi-based garment manufacturer may gain new customers abroad but struggle with the cost of compliance with foreign regulations.
Question 14
The international balance of trade affects foreign exchange rates as a trade surplus increases demand for the Kenyan shilling, appreciating its value, while a deficit reduces demand, causing depreciation. Importers benefit from a strong shilling as imports become cheaper, while exporters benefit from a weaker shilling as their goods become more competitive internationally. Businesses must consider these dynamics when planning pricing and sourcing.
Practical 1: Defining International Trade Concepts
Time: 1 Hour | Type: Individual
Resources Required:
Laptop with Microsoft Word or similar word processing software
Internet access for research
Reference materials: Kenya National Bureau of Statistics (KNBS) reports, business management textbooks
You are a business analyst at a SACCO in Kisii preparing an internal report for new staff on the basics of international trade to improve their understanding of the business environment.
Tasks:
i. Define the term "international trade" in your own words
ii. Identify and explain three main types of international trade transactions
iii. Provide two examples of Kenyan exports and imports relevant to the SACCO’s clientele
iv. Summarize your findings in a two-page typed report
Assessor Observation Criteria:
[ ] Clear and accurate definition of international trade
[ ] Correct identification and explanation of trade types
[ ] Relevant examples linked to Kenyan context
[ ] Professional formatting and clarity of report
Practical 2: Analyzing Advantages and Disadvantages of International Trade
Time: 1.5 Hours | Type: Pairs
Resources Required:
Flip chart paper and markers
Laptop with internet access
Case study handout on Kenya’s coffee export industry
At a business training centre in Nakuru, pairs of students act as consultants advising a coffee cooperative on the pros and cons of engaging in international trade.
Tasks:
i. Research and list five advantages of international trade for the coffee cooperative
ii. Research and list five disadvantages or risks associated with international trade
iii. Prepare a presentation on flip chart paper summarizing the advantages and disadvantages
iv. Deliver a 10-minute oral presentation to the class
Assessor Observation Criteria:
[ ] Comprehensive and accurate listing of advantages and disadvantages
[ ] Logical organization of points on flip chart
[ ] Effective communication and presentation skills
[ ] Ability to answer questions from assessor or peers
Practical 3: Calculating the International Balance of Payments
Time: 2 Hours | Type: Individual
Resources Required:
Calculator
Laptop with spreadsheet software (Excel or LibreOffice Calc)
Sample data set on Kenya’s export and import values from KNBS or CBK reports
You are an economic analyst at a wholesaler in Mombasa tasked with preparing a balance of payments statement for the previous fiscal year.
Tasks:
i. Input given export and import data into a spreadsheet
ii. Calculate the current account balance, capital account, and financial account totals
iii. Prepare a summary table showing the overall balance of payments position
iv. Write a brief interpretation of the results indicating whether Kenya had a surplus or deficit
Assessor Observation Criteria:
[ ] Accurate data entry into spreadsheet
[ ] Correct calculations of account balances
[ ] Clear and properly formatted summary table
[ ] Logical interpretation aligned with calculated results
Practical 4: Preparing an International Balance of Trade Report
Time: 1.5 Hours | Type: Individual
Resources Required:
Laptop with word processing software
Access to Kenya Revenue Authority (KRA) trade statistics
Printer
As an intern at a financial consultancy firm in Nairobi, you are required to prepare a report on Kenya’s balance of trade for a client considering entering international markets.
Tasks:
i. Define the international balance of trade and differentiate it from balance of payments
ii. Obtain recent data on Kenya’s exports and imports values
iii. Calculate the trade balance and state whether Kenya is running a trade surplus or deficit
iv. Draft a two-page report with tables and charts illustrating the trade balance
Assessor Observation Criteria:
[ ] Clear and accurate definitions
[ ] Correct data sourcing and calculations
[ ] Effective use of tables and charts
[ ] Professional report writing style
Practical 5: Interpreting International Terms of Trade
Time: 1 Hour | Type: Individual
Resources Required:
Calculator
Sample data on export and import price indices
Laptop with spreadsheet software
While working at a retail firm in Eldoret, you are asked to analyze how changes in international terms of trade affect the company’s procurement costs.
Tasks:
i. Calculate the terms of trade using provided export and import price index data
ii. Interpret whether the terms of trade have improved or worsened for Kenya
iii. Explain the potential impact of these changes on the retail firm’s import costs
iv. Prepare a one-page summary of your analysis
Assessor Observation Criteria:
[ ] Accurate calculation of terms of trade ratio
[ ] Correct interpretation of results
[ ] Relevant explanation of business impact
[ ] Clarity and conciseness of summary
Practical 6: Role Play on Negotiating International Trade Terms
Time: 1.5 Hours | Type: Group of 4
Resources Required:
Role cards with scenarios for exporters and importers
Notepads and pens
At a business management training workshop in Kisumu, groups simulate negotiations between Kenyan exporters and foreign importers focusing on terms of trade.
Tasks:
i. Assign roles within the group as exporter and importer representatives
ii. Prepare negotiation points focusing on price, delivery terms, and payment methods
iii. Conduct a simulated negotiation session lasting 20 minutes
iv. Write a group reflection report on the negotiation outcomes and challenges
Assessor Observation Criteria:
[ ] Active participation and role adherence
[ ] Use of relevant trade terms during negotiation
[ ] Realistic negotiation tactics demonstrated
[ ] Quality of reflection report
Practical 7: Case Study Analysis of Kenya’s Export Performance
Time: 2 Hours | Type: Individual
Resources Required:
Case study document on Kenya’s tea export sector from Tea Board Kenya
Laptop with word processing software
You are a business analyst at a tea exporting business in Meru assigned to analyze Kenya’s tea export performance and its effect on international trade balance.
Tasks:
i. Read the provided case study thoroughly
ii. Identify key factors influencing Kenya’s export performance
iii. Analyze how export trends affect the balance of trade and balance of payments
iv. Prepare a detailed report with recommendations for improving export competitiveness
Assessor Observation Criteria:
[ ] Insightful identification of critical export factors
[ ] Logical analysis linking exports to trade balance
[ ] Feasible recommendations for stakeholders
[ ] Coherent and well-structured report
Practical 8: Creating a Visual Presentation on International Trade Advantages
Time: 1 Hour | Type: Individual
Resources Required:
Laptop with PowerPoint or similar presentation software
Internet access for research
At a hardware shop in Machakos, you are tasked with creating an educational presentation for local SMEs on the benefits of engaging in international trade.
Tasks:
i. Research five key advantages of international trade for SMEs
ii. Design a 10-slide presentation highlighting each advantage with relevant examples
iii. Include images, graphs, and bullet points to enhance clarity
iv. Present the slideshow to your peers
Assessor Observation Criteria:
[ ] Accurate and relevant content on advantages
[ ] Effective use of multimedia elements
[ ] Clear and engaging presentation delivery
[ ] Ability to respond to questions confidently
Practical 9: Drafting a Policy Brief on Kenya’s International Trade Challenges
Time: 2 Hours | Type: Individual
Resources Required:
Laptop with word processing software
Access to reports from Kenya Association of Manufacturers (KAM)
Printer
Working as a policy analyst at a business advocacy group in Nairobi, you are required to draft a policy brief addressing challenges Kenya faces in international trade.
Tasks:
i. Identify five major challenges affecting Kenya’s international trade from KAM reports
ii. Analyze how these challenges influence the balance of payments and trade balance
iii. Suggest policy interventions to mitigate these challenges
iv. Write a concise policy brief of no more than three pages
Assessor Observation Criteria:
[ ] Well-researched identification of challenges
[ ] Clear linkage between challenges and trade metrics
[ ] Practical and evidence-based policy suggestions
[ ] Professional and concise writing style
Practical 10: Simulating Currency Exchange Impact on International Trade
Time: 1.5 Hours | Type: Group of 3
Resources Required:
Calculator
Sample currency exchange rates and trade data
Laptop with spreadsheet software
At a business management class in Nairobi, groups simulate how fluctuations in currency exchange rates affect Kenyan importers and exporters.
Tasks:
i. Calculate the cost of imports and revenue from exports at different exchange rates
ii. Analyze the impact of currency appreciation and depreciation on trade balance
iii. Prepare a group report summarizing findings and implications for business decisions
iv. Present findings to the class
Assessor Observation Criteria:
[ ] Accurate calculations of costs and revenues
[ ] Clear analysis of currency effects on trade
[ ] Logical and coherent group report
[ ] Effective presentation skills
Practical 11: Research and Report on Kenya’s International Trade Partners
Time: 1 Hour | Type: Individual
Resources Required:
Internet-enabled laptop
Access to Kenya Trade Network Agency (KenTrade) data
As a trade officer at a transport company in Nakuru, you need to prepare a report on Kenya’s main international trade partners to guide local exporters.
Tasks:
i. Identify the top five countries Kenya trades with for exports and imports
ii. Describe the main goods traded with each partner country
iii. Analyze how these relationships influence Kenya’s balance of trade
iv. Compile your findings into a one-page report
Assessor Observation Criteria:
[ ] Accurate identification of trade partners
[ ] Clear description of traded goods
[ ] Insightful analysis of trade impact
[ ] Concise and well-organized report
Practical 12: Preparing a Comparative Table of International Trade Terms
Time: 1 Hour | Type: Individual
Resources Required:
Laptop with spreadsheet software
Reference materials on Incoterms 2020
As a procurement officer at a hotel in Naivasha, you must understand international trade terms to negotiate contracts with foreign suppliers.
Tasks:
i. Research and list at least five common international trade terms (Incoterms)
ii. Create a comparative table showing each term’s responsibilities for buyer and seller
iii. Provide examples of when each term would be used in hotel supply procurement
iv. Submit the completed table and examples as a typed document
Assessor Observation Criteria:
[ ] Correct identification of trade terms
[ ] Accurate and detailed comparative table
[ ] Relevant and practical examples
[ ] Neat and professional document format
Practical 13: Evaluating the Impact of Tariffs on Kenya’s Trade
Time: 1.5 Hours | Type: Individual
Resources Required:
Laptop with spreadsheet software
Sample data on tariff rates and trade volumes from Kenya Revenue Authority
You are an economist at a printing business in Kisumu tasked with analyzing how tariffs affect Kenya’s import and export volumes.
Tasks:
i. Use the data to calculate the percentage change in import and export volumes after tariff adjustments
ii. Interpret the results to determine the effect on Kenya’s balance of trade
iii. Write a brief report recommending whether tariffs should be increased, decreased, or maintained
iv. Present the report to the business owners
Assessor Observation Criteria:
[ ] Accurate calculations and data analysis
[ ] Logical interpretation of tariff impact
[ ] Clear and justified recommendations
[ ] Professional presentation and communication
Practical 14: Preparing a SWOT Analysis of Kenya’s International Trade
Time: 2 Hours | Type: Individual
Resources Required:
Laptop with word processing software
Access to Kenya Export Promotion and Branding Agency (KEPROBA) publications
As a business development officer at a cooperative society in Thika, you are preparing a SWOT analysis to help the cooperative plan its export strategy.
Tasks:
i. Identify strengths, weaknesses, opportunities, and threats related to Kenya’s international trade environment
ii. Provide at least three points under each SWOT category with explanations
iii. Suggest strategic actions for the cooperative based on the analysis
iv. Compile your work into a formal report
Assessor Observation Criteria:
[ ] Comprehensive and relevant SWOT points
[ ] Clear explanations with business context
[ ] Practical and actionable strategic suggestions
[ ] Well-structured and professionally presented report
Practical 15: Conducting a Survey on Local Business Awareness of International Trade
Time: 2 Hours | Type: Group of 4
Resources Required:
Survey questionnaire template
Tablets or smartphones for data collection
PPE: Masks, hand sanitizers (if visiting crowded business areas)
Your group is engaged by a chamber of commerce in Eldoret to assess local SMEs’ awareness of international trade benefits and challenges.
Tasks:
i. Design a 10-question survey focusing on knowledge of international trade concepts and participation
ii. Conduct face-to-face surveys with at least 15 local businesses
iii. Compile and analyze the collected data using spreadsheet software
iv. Prepare a presentation summarizing findings and recommendations for training needs
Assessor Observation Criteria:
[ ] Appropriateness and clarity of survey questions
