Understanding Global Business Dynamics: Trade, Debts & Markets

1. POB 1.03 Part 1 Understand business in the global marketplace.

2. Domestic Vs. Foreign Business • Domestic Business • The making, buying, and selling of goods and services within a country. • Foreign Business • Business activities needed for creating, shipping, and selling goods and services across international borders • Also called international business or world trade

3. Absolute Vs. Comparative Advantage • Absolute Advantage • Exists when a country can produce a good or service at a lower cost than other countries (ex. Saudi Arabia and oil) • Comparative Advantage • Exists when a country specializes in the production of goods and services at which it is relatively more efficient

4. Imports Vs. Exports • Imports – items brought into the US from other countries • Common imports: bananas, coffee, cocoa, spices, tea, silk • Exports – goods and services sold to other countries • Common exports: agricultural products & machinery, medicines, movies, music

5. Measuring Trade Relations • People work to buy things …. • We sell our labor for wages • We spend wages on goods and services • We try to keep spending and income in balance • Countries want to keep a balance too

6. Foreign Debt • Foreign Debt is the amount of money a country owes other countries • We want to have a balance of trade and a balance of payments

7. Balance of Trade • Balance of Trade – difference between a country’s total exports and total imports • Trade surplus is favorable • exports > imports • Trade deficit is unfavorable • Imports > exports • Can have a surplus with one country and deficit with another • Don’t want to be dependent on other countries

8. Balance of Payments • Balance of Payments – difference between the amount of money that comes into the country and the amount that goes out of it • Favorable: $ in > $ out • Unfavorable: $ out > $ in • How does money go in and out? • Investments in companies • Financial and military aid • Tourism • Banks depositing in foreign banks

9. Foreign Exchange Market • Foreign Exchange Market – banks that buy and sell different currencies • Exchange Rate – the value of a currency in one country compared with the value in another

10. What factors affect the exchange rate? • Balance of Payments – rate rises when there is a favorable balance • Economic Conditions – inflation and high interest rates reduce buying power • Political Stability – avoid risk! • Changes in govt. party • New laws put into place