BALANCE OF PAYMENTSINTERNATIONAL MARKETING

WARMUP

20 point assignment from last class Comparison chart of Pricing Terms Letter of Credit Pricing Strategy applied to new or existing product

Missing Unit 9.0 Test on Promotion Chynna, Frankie, Brianna, Milan, Rashon, Michael, Catrina, Reuben, &

Weissa

IM AGENDA: TEST FRIDAYSection 10.1: Money, Hard & Soft Currency, Exchange Rate, Law of Supply &

Demand, Four Factors Influencing Exchange Rates:

Transactional Demand, Economic Confidence, Money Supply, & Speculative Demand

Section 10.2 Price, Price Floor, Price Ceiling, Penetration Pricing, Skim Price,

Market Price, Prestige Price, Elastic v. Inelastic Demand, Factors affecting Global Pricing Strategies, Cash in Advance, & Letters of Credit

10.3: BALANCE OF PAYMENTS

Essential questions: What is balance of payment & how is it calculated?

What are the two types of International banks and how do they compare to each other?

Key Terms: Inflation, Hyperinflation, Current Accounts, Capital Accounts,

Balance of Payment, Trade Deficit, National Debt, Export-Import Bank, & Central Bank

INTERNATIONAL ACCOUNTS

Inflation: The increase in overall prices in an economy. Inflation Equals:1. Country’s currency loses strength 2. Cost of imported products increases as cost of exports

decrease3. Negative impact on currency exchange rate. Deflation is the exact opposite

Hyperinflation: An extreme case of inflation.

WHAT IS BALANCE OF PAYMENT? While doing business with other countries, currency flows into and out of a country according to the supply and demand in the market.

These payment flows are measured in a Balance of Payment “BOP”.

If the amount of currency flowing into a country is MORE than the currency flowing out than the country has positive BOP

If the currency flowing into a country is LESS than the currency flowing out, than the country has negative BOP.

A country’s BOP indicates economic activity and global competitiveness.

BALANCE OF PAYMENTS There are two major balance of components:

1. Current Accounts: Track the flow of currency from trade into & out of a country within a one year time period

Goods purchased include cars, farm equipment, & jet airplanes Services purchased include intellectual property such as movies, music, & software Income: Returns from investments made in the past Transfers: Sending of funds to other countries (International Investment)When the Current Account Does Not Balance it runs a: Trade Deficit: Imports more than it Exports (example United States) Trade Surplus: Exports more than it Imports (example China)

2. Financial & Capital Accounts: Includes financial transactions such as loans, stock purchases, or the buying and selling of companies

10.3 ACTIVITYInterpret the example of the current account statement indicating the BOP of USA. Research the numbers for one of the below countries and prepare a similar statement showing the Balance of payment of that country for any recent year.China SpainBrazil Russia Germany AustraliaCanada ItalyIndia JapanSummarize your findings in 7 to 10 bullet points. List your sources of information at the bottom of the page.

USA EXAMPLE: PAGE 246

INTERNATIONAL BANKING International bankers play a significant role in

the international trade process Issue letters of credit Finance international trade

Commercial Banks offer a variety of services, such as accepting deposits & making loans Work with importers & exporters who have good credit

INTERNATIONAL BANKING Types of banks that facilitate trade and impact

the BOPs:Export-import bank:(ex-im) banks Independent banks established by governments to finance or insure

the export sales of a country’s products. Reduces risk for exporters If exporter loses sales due to political actions, bank will reimburse

Central bank: the government’s bank responsible for a country’s monetary policy sets interest rates and lends money to a country’s banks Maintains stability of the national currency & money supply finances government debt by selling bonds Example: any Federal Reserve banks of USA.

IMPACT OF NATIONAL DEBT ON EXCHANGE RATES Money borrowed from other countries impacts

exchange rates: Stable countries become a safe haven for international

investors Strong economy suggests low risk If investors demand more currency (purchase bonds)

from a stable economy a favorable exchange rate is created

If economy is weak investors will not want to purchase bonds, and interest rates go up, weakening the exchange rate