Business in the Global Economy

Business in the Global EconomyChapter 3Describe importing and exporting activities.

Compare balance of trade and balance of payments.

List factors that affect the value of global currencies.3-1 International Business BasicsGoalsDomestic business is the making, buying, and selling of goods and services within a country.International business refers to business activities needed for creating, shipping, and selling goods and services across national borders; AKA foreign or world tradeThe United States conducts trade with more than 180 countries.

Trading Among NationsAbsolute Advantage when a country can produce a good or service at a lower cost than other countries.Result from an abundance of natural resources or raw materialsExamples: South America &Coffee Saudi Arabia & Oil

Absolute AdvantageComparative Advantage situation in which a country specialized in the production of a good or service at which it is relatively more efficient.Comparative AdvantageItems bought from other countriesU.S. companies must import tin, chrome, manganese, nickel, copper, zinc, and several other metal to manufacture certain goods.Without foreign trade, many things you buy would cost more or not be available. Other countries can produce some goods at a lower cost because they have the needed raw materials or have lower labor costs.ImportingGoods and services sold to other countriesOther countries use different items and services produced in the U.S.Agricultural productsMedicinesMoviesCNNESPNOne of every six jobs in the U.S. depends on international business.

ExportingWhen a country has an unfavorable balance of trade it owes money to others. Foreign Debt is the amount a country owes to other countries.

Balance of Trade is the difference between a countrys total exports and total imports.

Measuring Trade RelationsIf a country exports (sells) more than it imports (buys), it has a trade surplus.Trade position is said to be favorable

If a country imports (buys) more than it exports (sells), it has a trade deficit.Trade position is said to be unfavorable

Balance of Trade The difference between the amount of money that comes into a country and the amount that goes out of it.Investments & TourismMilitary aid Banks deposit funds in a foreign bankTourismBalance of PaymentsA positive or favorable balance of payments occurs when a nation receives more money in a year than it pays out.

A negative or unfavorable balance of payments occurs when a country sends more money out than it brings in.

The process of exchanging one currency for anther occurs in the foreign exchange marketBanks that buy and sell different currencies

The exchange rate is the value of a currency in one country compared with the value in another.International CurrencySupply and demand affect the value of currency Currency Exchange Windows are generally located in airports, train stations, hotels, and local banks.Factors Affecting Currency ValuesBalance of payments: when a country has a favorable balance of payments its currency is constant or rising. An increase demand for both the nations products and its currency causes this situationEconomic conditions: when prices increase and the buying power of the countrys money declines its currency is not as appealing. Inflation reduces the buying power of a currency. Interest rates also affect the value of a countrys money.Political Stability: Sudden change in governmentNew laws that may not allow foreign businesses to operate as freely as they did under old laws.