The topic of how foreign exchange markets affect international trade is a recurring theme in IELTS Writing Task 2 essays. Based on past exam trends and the increasing importance of global economics, there’s a high probability that this subject will continue to appear in future tests. Let’s explore a relevant essay question that has been featured in recent IELTS exams:
Some people believe that the foreign exchange market has a negative impact on international trade, while others think it is beneficial. Discuss both views and give your own opinion.
Analyzing the Question
This question requires candidates to:
- Discuss the negative impacts of the foreign exchange market on international trade
- Explore the benefits of the foreign exchange market for international trade
- Provide a personal opinion on the overall impact
Now, let’s examine sample essays for different band scores, starting with a high-scoring response.
Sample Essay 1 (Band 8-9)
The foreign exchange market plays a crucial role in facilitating international trade, yet its impact is a subject of debate. While some argue that it negatively affects global commerce, others believe it offers significant advantages. This essay will explore both perspectives before presenting my own viewpoint.
Critics of the foreign exchange market often point to its volatility as a major drawback for international trade. Sudden fluctuations in exchange rates can lead to unexpected losses for businesses engaged in cross-border transactions. For instance, a company that agrees to a contract in one currency may find the value of that deal significantly reduced if exchange rates shift unfavorably before payment is received. This uncertainty can discourage some firms from engaging in international trade altogether, potentially limiting global economic growth.
On the other hand, proponents argue that the foreign exchange market provides essential benefits to international trade. It offers a mechanism for currency conversion, allowing businesses to conduct transactions across different monetary systems seamlessly. Moreover, the market enables companies to hedge against currency risks through various financial instruments, such as forward contracts and options. This risk management capability can provide stability and predictability for international traders, encouraging more global business activity.
In my opinion, while the foreign exchange market does present challenges, its benefits to international trade outweigh the drawbacks. The ability to facilitate global transactions and manage currency risks is fundamental to the functioning of our interconnected world economy. Without this market, international trade would be far more complex and risky, potentially stifling economic growth and development.
To mitigate the negative impacts, I believe that businesses and policymakers should focus on developing more sophisticated risk management strategies and promoting greater stability in the global financial system. This could include better education for businesses on currency risk management and international efforts to reduce extreme market volatility.
In conclusion, the foreign exchange market, despite its challenges, is an indispensable component of international trade. By addressing its shortcomings while leveraging its benefits, we can ensure that it continues to support and enhance global commerce in the years to come.
[Word count: 329]
Sample Essay 2 (Band 6-7)
The foreign exchange market is an important part of international trade, but people have different opinions about its effects. Some think it’s bad for global trade, while others see it as helpful. I will discuss both sides and give my own thoughts on this topic.
Those who criticize the foreign exchange market say it makes international trade more difficult. When currency values change a lot, it can cause problems for businesses buying or selling things in other countries. For example, if a company agrees to buy something for a certain price in another currency, but then that currency becomes more expensive, the company might lose money. This uncertainty can make some businesses afraid to trade internationally.
However, there are also good things about the foreign exchange market for international trade. It allows companies to change money from one currency to another, which is necessary for doing business across borders. Also, businesses can use special financial tools to protect themselves from big changes in currency values. This can make international trade safer and encourage more companies to do business globally.
In my opinion, the foreign exchange market is more helpful than harmful for international trade. Even though it can be unpredictable sometimes, it’s very important for allowing trade between countries with different currencies. Without it, it would be much harder for businesses to operate internationally.
I think that to make the foreign exchange market work better for international trade, there should be more education for businesses about how to manage currency risks. Also, countries could work together to try to make currency values more stable. This would help reduce some of the problems while keeping the benefits of the foreign exchange market.
To sum up, while the foreign exchange market does have some negative effects on international trade, its positive impacts are more significant. It’s an essential part of our global economy, and with some improvements, it can continue to support international trade in the future.
[Word count: 309]
Sample Essay 3 (Band 5-6)
The foreign exchange market is important for international trade. Some people think it’s bad, but others think it’s good. I will talk about both sides and give my opinion.
People who don’t like the foreign exchange market say it makes trade between countries hard. When money values change a lot, it can be bad for businesses. If a company wants to buy something from another country, but the price changes because of currency changes, they might lose money. This makes some businesses scared to trade with other countries.
But there are also good things about the foreign exchange market. It helps companies change money from one type to another. This is important when doing business with other countries. Also, companies can use special ways to protect themselves from big changes in money values. This can make trading with other countries safer.
I think the foreign exchange market is more good than bad for international trade. It helps countries trade with each other, even if they use different money. Without it, it would be very hard for businesses to work with other countries.
To make things better, I think businesses should learn more about how to use the foreign exchange market safely. Also, countries should try to make money values more stable. This would help make international trade easier and safer.
In conclusion, even though the foreign exchange market can cause some problems, it’s very important for international trade. It helps countries do business with each other, which is good for the world economy.
[Word count: 249]
Explaining the Band Scores
Band 8-9 Essay:
- Task Achievement: Fully addresses all parts of the task with a well-developed response.
- Coherence and Cohesion: Ideas are logically organized with clear progression throughout.
- Lexical Resource: Wide range of vocabulary used with flexibility and precision.
- Grammatical Range and Accuracy: Wide range of structures used accurately and appropriately.
Band 6-7 Essay:
- Task Achievement: Addresses all parts of the task, though some aspects are more fully covered than others.
- Coherence and Cohesion: Information and ideas are generally well organized with clear overall progression.
- Lexical Resource: Sufficient range of vocabulary for the task, with some less precise usage.
- Grammatical Range and Accuracy: Mix of simple and complex sentence forms with generally good control.
Band 5-6 Essay:
- Task Achievement: Addresses the task only partially, with limited development of ideas.
- Coherence and Cohesion: Information and ideas are arranged coherently but may lack overall progression.
- Lexical Resource: Limited range of vocabulary, adequate for basic communication but lacks precision.
- Grammatical Range and Accuracy: Limited range of structures with some errors that may impede communication.
Key Vocabulary to Remember
- Volatility (noun) /ˌvɒləˈtɪləti/ – tendency to change quickly and unpredictably
- Fluctuations (noun) /ˌflʌktʃuˈeɪʃənz/ – irregular changes in number or amount
- Hedge (verb) /hedʒ/ – protect oneself against financial loss
- Mitigate (verb) /ˈmɪtɪɡeɪt/ – make less severe or serious
- Indispensable (adjective) /ˌɪndɪˈspensəbl/ – absolutely necessary
- Facilitate (verb) /fəˈsɪlɪteɪt/ – make an action or process easier
- Interconnected (adjective) /ˌɪntəkəˈnektɪd/ – mutually connected or related
- Stifle (verb) /ˈstaɪfl/ – restrain or suppress
effects of economic globalization on stock markets
In conclusion, understanding the impact of foreign exchange markets on international trade is crucial for IELTS candidates. Practice writing essays on this topic, considering both positive and negative aspects, and remember to support your arguments with clear examples. You can also expect similar questions about the effects of global trade on traditional crafts and industries or the importance of global trade for economic development. To improve your skills, try writing your own essay on this topic and share it in the comments section for feedback and discussion.