International Business Basics Chapter 3-1 International Business Basics

Trading Among Nations Domestic Business: making, buying, and selling of goods and services within a country International Business: business activities needed for creating, shipping, and selling goods and services across national borders. (AKA foreign or world trade)

Absolute Advantage vs. Comparative Advantage Absolute Advantage – when a country can produce a good or service at a lower cost than other countries. This may result from an abundance of natural resources. Remember the Lebron James example Comparative Advantage – when a country specializes in the production of a good or service at which it is relatively more efficient. A country may be able to produce both computers and clothing better than other countries. Still might be better to produce computers and import clothing

US Trades with Over 180 Countries Imports: items bought from other countries US dependent on other countries for raw materials Without foreign trade, many things you buy would cost more or not be available Exports: goods and services sold to other countries

Balance of Trade Balance of Trade is the difference between a country’s total exports and total imports If a country exports more than it imports, it has a trade surplus If a country imports more than it exports, it has a trade deficit. Foreign debt is the amount a country owes to other countries.

Balance of Payment Balance of payment is the difference between the amount of money that comes into a country and amount that goes out of it. Money also goes from one country to another through investments and tourism. Positive or favorable balance of payments occurs when a nation receives more money in a year than it pays out.

International Currency One challenge faced by businesses involved in international trade is the various currencies used around the world. Foreign exchange rate is the value of a currency in one country compared with the value in another.

Factors Affecting Currency Values Balance of payments – when a country has a favorable balance of payments, the value of its currency is usually constant or rising. Economic conditions – when prices increase and the buying power of the county’s money declines, its currency will not be as appealing. Political stability – uncertainty in the country reduces the confidence that business people have in its currency.