3-1 International Business Basics

Do Now Do you believe we should buy American? How many of you believe that international trade leads to Americans losing their jobs? List at least five items you are wearing/have with you (i.e. backpack/phone, etc) and where they are made. No removing of clothes please. You have 3 minutes to complete this. Look at your list. How many of the items you listed were made in the United States? Now look at your answers to the first two questions and think about this. If you answer yes to either of the first two questions, were the items that you have on from the United States? Why not? Shouldn’t you support your beliefs? Why did you buy these items instead?

Most business activities occur within a country’s own borders. Domestic 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 TRADING AMONG NATIONS

In the past, economies were viewed in terms of national borders In the past, economies were viewed in terms of national borders. With international trade expanding every day, these boundaries are no longer fully valid in defining economies. TRADING AMONG NATIONS

http://www.youtube.com/watch?v= RDC2ohDG4BI http://www.youtube.com/watch?v= 5_YPidwfylM http://www.youtube.com/watch?v=1Ebk XmVbTDg Homework: using the news clip as a guide identify the country of origin of 10 products in your home. TRADING AMONG NATIONS

TRADING AMONG NATIONS Comparative Advantage Absolute Advantage A country specializes in the production of a good or service at which it is relatively more efficient Absolute Advantage When a country can produce a good or service at a lower cost than other countries (can be several items) Abundance of resources or raw materials Saudi Arabia: Oil Brazil: Coffee TRADING AMONG NATIONS http://www.youtube.com/watch?v=Vvfzaq72wd0

TRADING AMONG NATIONS Importing Exporting Items bought from other countries Lower Cost Availability of goods Exporting Goods and services sold to other countries TRADING AMONG NATIONS

TRADING AMONG NATIONS Without foreign trade, many things you buy would cost more or may not be available. (Examples?) Other countries can produce goods at a lower cost because they have the needed raw materials or have lower labor costs. What is the risk of manufacturing in other countries? http://www.youtube.com/watch?v=Fve0xjEyk4U

Some consumers purchase foreign goods, even at higher prices, if they perceive the quality to be better than domestic goods (E.g. Swiss watches, German Cars, Swiss Chocolate, Italian clothes) One of every six jobs in the United States depends on International business. TRADING AMONG NATIONS

What types of goods and services are mentioned in the scenario? Which would be considered necessities by the members of the community, and why? Where does the community get these goods and services? How much of the community’s needs is met by getting goods and services from other communities? By their own community? Ancient Village (5,000 years ago) Williamsburg, Virginia (17th century) Home Town (21st century) Dine (Navajo) Village (15th Century) New York City (19th century) Samarkand, Uzbekistan (10th century)

The United States conducts trade with more than 180 countries. TRADING AMONG NATIONS

Checkpoint  How does importing differ from exporting? Importing is bringing items from other countries into a country. Exporting is selling goods and services to other countries. Checkpoint 

MEASURING TRADE RELATIONS Balance of Trade: the difference between a country’s total exports and total imports Country exports more than it imports has a trade surplus Country imports more than it exports has a trade deficit Where is the United States at the moment?

MEASURING TRADE RELATIONS Balance of Payments: the difference between the amount of money that comes into a country and goes out of a country Favorable: receives more money in a year than it pays out (positive balance of trade) Unfavorable: sending out more money that it brings in (negative balance of trade) Some countries even limit the amount of money their citizens can take with them when they travel. How? Investment in a corporation, factory, office building Give financial aid to a country or military aid Foreign banking Travel

U.S. TRADE BALANCES

How does balance of trade differ from balance of payments? Balance of trade is the difference between a country’s total exports and total imports. Balance of payments is the difference between the amount of money that comes into a country and the amount that goes out of it. Checkpoint 

INTERNATIONAL CURRENCY Each Country has: Its own banking system currency Foreign exchange rates: the value of currency In one country compared with value in another Exchanging Currency for business or travel Currency exchange business (airport, hotel, train station, etc) Bank Rates vary INTERNATIONAL CURRENCY

International Currency Mary is planning to visit Canada. How much is a dollar worth in Canadian Currency? 1,000.00 USD = United States Dollars  1.00 USD = Canada Dollars 1.00 CAD = _____________ http://www.xe.com/ucc/ (currency converter website) International Currency

INTERNATIONAL CURRENCY Three main factors affect currency rates Balance of payments: favorable balance of payments = stable rate Economic conditions: inflation and higher interest rates reduces buying, lowering value of currency Political stability: government change, new laws create uncertainty INTERNATIONAL CURRENCY

Checkpoint  What factors affect the value of a country’s currency? Balance of payments When a country has a favorable balance of payments, the value of its currency is usually constant or rising Economic conditions Prosperity increases currency value Political stability Stable governments favor currency values