1. Business in a Global Economy
Chapter 10
Business in a Global Economy pp

2. Learning Objectives After completing this chapter, you’ll be able to:
Explain why nations need to trade with each other.
Describe how currency exchange works.
continued

3. Learning Objectives After completing this chapter, you’ll be able to:
State the advantages of protectionism and free trade.
Name types of trade barriers.
continued

4. Learning Objectives After completing this chapter, you’ll be able to:
Identify some of the major trade alliances in the world today.

5. Why It’s Important
Global trade doesn’t just influence business, it also affects all the countries and people of the world.

6. Key Words multinational company imports exports exchange rate
balance of trade
protectionism
continued

7. Key Words
tariff
quota
embargo
free trade

8. Global Producers and Consumers
We are all part of the global marketplace.
The global marketplace exists anywhere business crosses national borders.

9. Global Producers and Consumers
Countries can satisfy their citizens’ wants and needs by buying them in the global market.

10. The Global Marketplace
A multinational corporation is a company that does business in many countries and has facilities and offices in many countries around the world.

11. The Global Marketplace
The global marketplace works much like a shopping mall or a supermarket.

12. The Global Marketplace
The United States is rich in resources—human, natural, and production—but it still needs things from other countries.

13. Name the product that the United States exports more than it imports.
Figure
10.1
MAJOR EXPORTS AND IMPORTS OF THE UNITED STATES
Look at the graph to see what products the United States imports and exports.
Name the product that the United States exports more than it imports.
Source: Standard & Poor’s

14. Specialization
Countries specialize in producing certain goods and services.
By specializing, countries can sell what they produce best so they can buy the products they need from other countries.

15. Specialization
The kinds of resources available to a country often influence what it specializes in producing.

16. Specialization
A country with little money or advanced technology but a large population might specialize in manual labor.

17. Types of Trade
Imports are goods and services that one country buys from another country.
Exports are goods and services that one country sells to another country.

18. Types of Trade Other types of trade include: Investment
Exchange of human resources
Tourism
Military aid
Loans

19. Currency
Countries have to pay for each other’s products with currency. Currency is another name for money.
Just as countries use different lan-guages, they use different currencies, such as dollars, pesos, and yen.

20. Currency
The foreign exchange market is made up of banks where different currencies are exchanged.

21. Exchange Rates
The exchange rate is the price at which one currency can buy another currency.
Exchange rates change from day to day and from country to country.

22. Exchange Rates
How much the currency of a country is worth depends on how many other countries want to buy its products.

23. Prices
A company follows the change in exchange rates to find the best prices for products.

24. Prices
When the value of a country’s currency goes up compared to another country’s, it has a favorable exchange rate.

25. Prices
When the value of a country’s currency goes down compared to another country’s, it has an unfavorable exchange rate.

26. Prices
Some countries choose to lower the value of their currency to bring in more business.
When this happens, it costs less to buy products from that country.

27. Balance of Trade
Balance of trade is the difference in the value between how much a country imports and how much it exports.

28. Balance of Trade
When a country exports more than it imports, it has a trade surplus.
When a country imports more than it exports, it has a trade deficit.

29. Balance of Trade
A country can have an unfavorable balance of trade with one country and a favorable balance with another.

30. How Exchange Rates Affect the
Graphic Organizer
Graphic Organizer
How Exchange Rates Affect the
Balance of Trade
More
exports
than
imports
Trade
surplus
(leftover
money)
Weak
Currency
FAVORABLE
BALANCE OF
TRADE
More
imports
than
exports
NEGATIVE
BALANCE OF
TRADE
Trade
deficit
(debt)
Strong
Currency

31. Explain exchange rates.
Fast Review
Explain what trade is.
Explain exchange rates.
Why would a country want to devalue its currency?

32. Global Competition
Global competition often leads to trade disputes between countries.
At the heart of most trade disputes is whether there should be limits on trade.

33. Protectionism
Protectionism is the practice of putting limits on foreign trade to protect businesses at home.

35. Protectionism Some of the reasons in favor of protectionism are:
Foreign competition can lower the demand for products made at home.
continued

36. Protectionism
Companies at home need to be protected from unfair foreign competition.
Industries that make products related to national defense need to be protected.
continued

37. Protectionism
The use of cheap labor in other countries can lower wages or threaten jobs at home.
A country can become too dependent on another country for important products like oil, steel, or grain.
continued

38. Protectionism
Other countries might not have the same environmental or human rights standards.

39. Introduction to Business
‘Other Arguments’
For
“Keep Money at Home”
-Country gets the goods & the foreigners get the money.
“Home Market”
-More jobs can be created.
“National Security”
-A nation dependent on foreign sources of supply is a vulnerable position during war.
“Infant Industry”
New industry needs protection for time to develop against established competition.
Against
“Keep Money at Home”
-Money is not the only form of wealth. Money paid for imports will return sooner or later in the form of exports or investments (stocks)
“Home Market”
-Why would we not specialize in something that we have a competitive advantage over our competition?
“National Security”
-We are less likely to go to war with countries who depend on us for key goods and/or services.
“Infant Industry”
-New companies successfully start everyday in this country competing against current competition.
Introduction to Business

40. Trade Barriers
To limit competition from other countries, governments put up trade barriers to keep foreign products out.

41. Trade Barriers
A tariff is a tax placed on imports to increase their price in the domestic market.

42. Trade Barriers
A quota is a limit placed on the quantities of a product that can be imported.

43. Trade Barriers
An embargo is when the government decides to stop an import or export of a product.

44. Free Trade
Supporters of free trade believe there should be no limits on trade.

45. Free Trade The benefits of free trade are:
It opens up new markets in other countries.
It creates new jobs, especially in areas related to global trade.
continued

46. Free Trade
Competition forces businesses to be more efficient and productive.
Consumers have more choice in the variety, price, and quality of products.
continued

47. Free Trade
It promotes cultural understanding and cooperation between countries.
It helps all countries raise their standard of living.

48. Trade Alliances
To reduce limits on trade more countries are forming trade alliances with each other.
In a trade alliance, several countries merge their economies into one huge market.

49. Trade Alliances
NAFTA (North American Free Trade Agreement) was controversial because some workers would be displaced when trade barriers were lowered.

50. Trade Alliances
Some of the major trade alliances in the world today are:
NAFTA
European Union (EU)
Association of Southeast Asian Nations (ASEAN)

51. MAP OF TRADE ALLIANCES IN THE WORLD
Figure
10.2
MAP OF TRADE ALLIANCES IN THE WORLD
The European Union (EU) is the oldest and best-known economic community formed to promote free trade among the members of the community and to foster common economic policies.
What nations make up the European Union?

52. International Business and Finance Affects Everyone
Understanding international business and finance has become increasingly important for the consumer, wage earner, investor, citizen, and business leader.

53. International Business and Finance Affects Everyone
An understanding of international business helps you understand why goods and services are at particular prices.

54. International Business and Finance Affects Everyone
The business leader of tomorrow will have a good grasp of international business and finance.

55. Fast Review
Develop an opinion as to how you feel about the global market.
a. Are you a protectionist? Why or why not?
b. Do you believe in free trade? Why or why not?
c. Are you some where in the middle? If so, what trade restrictions implemented at what time make the most sense?

56. As a restaurant owner, what kind of things might you import and export?
continued

57. In the global marketplace, what is the importance of specialization?
continued

58. By expanding operations domestically and internationally, how does this affect the economies involved?
continued

59. How can a small company, like Panda Express, change domestic culture?

60. Business in a Global Economy
End of
Chapter 10
Business in a Global Economy pp