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At the end of this unit I will:

Learning Intentions. At the end of this unit I will:. Know about globalisation. Understand the benefits and challenges of globalisation. Know about the balance of trade and the balance of payments. Value international trade. 3. BEFORE WE BEGIN. #04AFEF.

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At the end of this unit I will:

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  1. Learning Intentions At the end of this unit I will: • Know about globalisation • Understand the benefits and challenges of globalisation • Know about the balance of trade and the balance of payments • Value international trade

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  3. BEFORE WE BEGIN #04AFEF Do this exercise individually or in pairs. Tick whether you agree or disagree with the statements. Revisit it after the unit to see if you have changed your mind about any of them.

  4. Websites Wonderful Worthwhile Websites www.businesseducation.ie www.cso.ie www.tutor2u.net/economics 5

  5. Introduction Bartering is where goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money. • Bartering became trade • Trade is where goods or services are exchanged for payment • Types of trade: • Local trade • National/domestic trade • International trade 6

  6. Did You Know? Bartering hasn’t been consigned to history. A community in Clonakilty, County Cork have set up their own bartering system. It’s called the Clonakilty Favour Exchange. Find out more at www.clonakiltyfavourexchange.ie 7

  7. Globalisation Economic globalisationis where countries come together to create one global economy, making international trade easier. • National companies can develop into international companies • International companies can have subsidiaries all over the world • Expansion of international markets has resulted in a very large, single world global market 8

  8. Globalisation: Benefits and Challenges Benefits Challenges • Beneficial to developing countries • Critics see world free market as undesirable and unrealistic • Human rights improve • Income increases • Powerful and rich countries: • Standard of living improves • Make the rules • Reduction in poverty • Get all the benefits 9

  9. Why Has Globalisation Expanded? The speed of globalisation has increased for a number of reasons: • Improvements in technology and communication • Improvements in transport • Sophisticated online payment methods • The growth of multinational companies (MNC)s and increase in global brands 10

  10. Containerisation Containerisation is a system that uses standard-sized containers to transport goods. Containers can be loaded and unloaded between ships, trains and trucks. Containers are tracked using computer programmes. Containerisation has reduced the cost of transport and helped globalisation. 11

  11. Economic Advantages • An incentive for countries to specialise and benefit from competitive advantage • Businesses benefit from economies of scale • Access to cheap raw materials, enabling firms to be more competitive • Increase in trade should lead to increase in employment • An increase in dividends makes shareholders happy 12

  12. Economic Disadvantages • A risk of countries becoming too dependent on each other • The increased power and influence of MNCs • The over-specialisationof goods is a risk • MNCs and economies of scale can drive local companies out of business • A lack of international laws means MNCs can operate differently in developing countries • Growth in trade has increased pollution • Globalisation creates winners and losers 13

  13. Are All Global Products Identical? Global businesses sell standardised products. However, not all global products are identical. • Adjustments for technical differences • Countries have different laws on packaging and labelling • Different tastes in different countries • Variation in price due to taxes, duties and exchange rates 14

  14. International Trade An open economy is an economy where goods and services are traded with other countries without rules or limits. Ireland is an open economy. To prosper and maintain growth it needs to export and attract oversees companies to locate in Ireland. The following organisations work to promote Ireland overseas: • IDA Ireland (Industrial and Development Authority) • Enterprise Ireland • Bord Bia • Tourism Ireland • Science Foundation Ireland 15

  15. Definitions of National and International Trade International trade means selling goods and services to, and buying goods and services from, other countries. Domestic trade is buying and selling goods and services in our own country. Exporting is when goods and services are sold to other countries. Importing is buying goods and services from other countries. Visible trade is trade in physical goods. Invisible trade is trade in services. 16

  16. Imports Imports are made up of: • Visibleimports • Invisibleimports Think of an import as money leaving the country. Whether an import is invisible or visible, the money is leaving our country. 17

  17. Example 1 If Ireland imports BMWs from Germany it is a visible import. Why? • The BMWs come into Ireland (physical goods) • Money leaves Ireland and goes to Germany to pay for the BMWs

  18. Example 2 If Irish people holiday in New York it is an invisible import. Why? • Nothing physical comes into Ireland • Money leaves Ireland as Irish money is spent in New York

  19. Why Import? • There are raw materials we don’t have in Ireland • Our climate isn’t suited to growing certain products • We don’t produce all the products we need • Irish people like to travel • It’s easy to buy goods online 20

  20. Benefits of Importing • It gives consumers a greater variety of goods • It provides taxation for the government – customs duty • Consumers can obtain goods that would otherwise not be available • We can import essential raw materials which help production and the economy Time to think Think about where you buy your clothes and accessories. Are any of your clothes or accessories produced in Ireland? Consider doing an audit of where all the clothes and accessories you bought over the last year were produced. 21

  21. Exports Exports are made up of: • Visible exports • Invisibleexports Think of an export as something good for the country in terms of money. Exports means money is coming in to our country. 22

  22. Example 3 If Ireland exports beef to Poland it is a visible export. Why? • Irish beef goes to Poland (physical goods) • Money (euros) leaves Poland and comes into Ireland to pay for the goods

  23. Example 4 If French people holiday in Ireland it is an invisible export. Why? • Nothing physical leaves Ireland • The French tourists come to Ireland with their money and they spend it in hotels, restaurants, shops, etc., which helps the Irish economy

  24. Why Export? Ireland is a small open economy and we need to export to create employment and to increase our GDP (gross domestic product). • We don’t want to depend entirely on the home market The eurozone is all the countries that are part of the European single currency and have the euro as their currency. Non-eurozonecountries are all the other countries of the world • We benefit from economies of scale • We earn foreign currency from non-eurozone areas that we trade with 25

  25. Benefits of Exporting • The increased levels of production create employment • There are additional taxes for the government • Companies are less dependent on the home market Time to think Have you ever had to exchange your euros for British pounds when visiting the UK? What happened? What is the current euro–sterling exchange rate? 26

  26. CHECKING IN • Copy and complete the sentences on page 475. • Copy the table and place a tick in the correct box.

  27. The Balance of Trade The balance of trade is the difference between the value of visible exports and the value of visible imports. Balance of Trade = Visible Exports - Visible Imports The following is an example of a healthy balance of trade. 28

  28. The Balance of Trade If the value of visible exports is greater than the value of visible imports = surplus If the value of visible exports is equal to the value of visible imports = balanced If the value of visible exports is less than the value of visible imports = deficit 29

  29. CHECKING IN Look at the transactions in the chart on page 476 and put a tickin the correct box to indicate whether each transaction is a: • Visible export • Invisible export • Visible import • Invisible import

  30. WORKING WITH OTHERS #04AFEF • Source the top three products that Ireland imports • Source the top three products that Ireland exports • Source the top three countries that Ireland imports from • Source the top three countries that Ireland exports to Page 477

  31. Balance of Payments The balance of payments is the difference between the value of all goods and services that Ireland exports and imports. Balance of Payments = Total Exports - Total Imports (Visible plus invisible exports) - (Visible plus invisible imports) The balance of payments can: • Have a surplus • Be balanced • Be a deficit 32

  32. Balance of Payments 33

  33. Balance of Payments Deficit Surplus What can our country do to improve on a balance of payments deficit? What can our country do to improve on a balance of payments surplus? • Try to grow exports • Use the money to pay off some of our national debt • Reduce imports • Encourage ‘buy Irish’ • Spend more on services and infrastructure • Promote Irish products and services 34

  34. Example 5: Balance of Trade and Balance of Payments BOT is a surplus as visible exports are greater than visible imports. Total exports = visible + invisible exports (€800 m + €400 m) Total imports = visible + invisible imports (€650 m + €550 m) BOP is a surplus as total exports are greater than total imports.

  35. WORKING WITH OTHERS #04AFEF Be the Minister of Finance. What might you do with the surplus? Page 478

  36. CHECKING IN • Using the information on page 478, calculate the following: • Total exports • Total imports • The balance of trade • The balance of payments State whether each is a deficit or a surplus. Show your workings. • Using the figures on page 478, calculate the balance of trade and the balance of payments for a country called Youty. • If it is a surplus, what might the government of Youty do? • If it is a deficit, what might the government of Youty do? 37

  37. Factors in International Trade A business will have to consider a number of factors when trading with other countries. • Language barriers – translation costs for non-English speaking countries • Cost of transport – Ireland is an island, increases costs • Insurance costs – goods are at risk at ports and airports • Adjusting products - different standards worldwide • Currency – different currencies outside the eurozone 38

  38. WORKING WITH OTHERS #04AFEF • Working in groups of four or five, write a script for your own economics show, called The JC Business Economics Fix. The topic of the show is ‘International Trade’. • What would make the best possible show: content, communication skills, visuals, research ...? • You might decide to present your show to your classmates. Page 479

  39. Currency The following are the rules for converting currencies: We refer to currency conversions as exchange rates. • Going from euro to foreign currencies, you multiply by the ‘sell at’ rate x • Going from foreign currency to euro, you divide by the ‘buy at’ rate ÷ 40

  40. Example 6: Sample Euro Exchange Rate Remember, if you’re converting from euros to a foreign currency – multiply. • If I have €100 to convert to pounds = €100 x £0.80 = £80 • If I have $500 to convert to euros = $500 ÷ 1.32 = €378.79 It is a good idea for businesses to trade with countries that use the same currency. However, this is not always possible.

  41. CHECKING IN Be a holidaymaker. You must decide on three destinations where you would like to go on holiday and the amount of euros you want to convert. Use the sample Bank Sell Rates in the chart on page 480 to help you make your decision. You have €300 to take with you on holiday.

  42. Be a Researcher • Research the exchange rates for ten countries that are not in the eurozone. • Can you source an online currency converter? • Do you know of any apps for currency conversions? • Use websites to source information on Ireland’s current imports and exports. Copy and fill in the ‘Trade Learning Sheet 1’ from page 480. • Use websites to source information on Ireland’s current Balance of Trade and Balance of Payments. Copy and fill in the ‘Trade Learning Sheet 2’. 43

  43. 3.7 GLOBALISATION OF TRADE • If the value of visible exports is less than the value of visible imports, what is the balance of trade? Quick Quiz Balanced Deficit Surplus

  44. 3.7 GLOBALISATION OF TRADE • If the value of visible exports is less than the value of visible imports, what is the balance of trade? Quick Quiz Balanced Deficit Surplus

  45. 3.7 GLOBALISATION OF TRADE • If the value of visible exports is less than the value of visible imports, what is the balance of trade? Quick Quiz Balanced Deficit Surplus

  46. 3.7 GLOBALISATION OF TRADE • If the value of visible exports is less than the value of visible imports, what is the balance of trade? Quick Quiz Balanced Deficit Surplus

  47. 3.7 GLOBALISATION OF TRADE • If the value of visible exports is less than the value of visible imports = deficit Quick Quiz: Review • If the value of visible exports is greater than the value of visible imports = surplus • If the value of visible exports is equal to the value of visible imports = balanced

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  49. Balance of payments • Globalisation • Balance of trade • Importing • Comparative advantage • Imports • International trade • Containerisation • Invisible trade • Domestic trade • Multinational companies (MNC) • Eurozone • Visible trade • Exporting • Exports

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