1. UNIT 3 – BUSINESS IN THE GLOBAL ECONOMY Unit 3.01 International Business Basics

2.  Imports  Exports  Balance of Trade  Balance of Payments  Exchange Rate KEY TERMS

3. items bought from other countries  US #1 importer in the world  In 2011, the US imported $2.314 Trillion  Top US imports: Top US imports 1.Crude oil 2.Passenger cars 3.Medicinal preparations 4.Automotive accessories 5.Other household goods Note: US imports ALL our bananas, coffee, cocoa, spices, tea, silk, and crude rubber IMPORTS

4. goods and services made in the US that are sold to other countries  US 2 nd largest exporter in the world (behind China)  In 2011, the US exported $1.511 Trillion  T op US Exports T op US Exports 1.Fuel 2.Aircraft 3.Motor vehicles 4.Vacuum tubes 5.Telecommunications equipment EXPORTS

5. Difference between a country’s total exports and total imports  Trade Surplus  Export (sells) more than it imports (buys)  Favorable balance of trade  Trade Deficit  Imports (buys) more than it exports (sells)  Unfavorable balance of trade BALANCE OF TRADE

6. US BALANCE OF TRADE Current U.S. Trade Deficit - $42 Billion

7. U.S. TOP TRADING PARTNERS (YEAR-TO-DATE JULY 2012) RankCountry Exports (Year-to-Date) Imports (Year-to-Date) Total Trade (Year-to-Date) % of Total Trade --- Total, All Countries 895.4 B1,323.90 B2,219.40 B100.00% --- Total, Top 15 Countries 613.1979.11,592.1071.70% 1Canada170.5190.1360.616.20% 2China61.4235.8297.213.40% 3Mexico124162.928712.90% 4Japan40.286.1126.35.70% 5Germany28.860.689.44.00% 6United Kingdom33.331.965.22.90% 7Korea, South25.734.960.62.70% 8Saudi Arabia10.335.7462.10% 9Brazil24.419.944.22.00% 10France18.224.342.51.90% 11Netherlands23.513.5371.70% 12Taiwan14.422.536.91.70% 13India1224361.60% 14Italy9.921.831.71.40% 15Switzerland16.415.231.61.40%

8. Difference between the amount of money that comes in to a country and the amount of money that goes out  Positive – when more money coming in to a country than going out  Negative – when more money going out of a country than coming in BALANCE OF PAYMENT

9.  Absolute Advantage – exists when a country can produce a good or service at a lower cost than other countries  Typically results from an abundance of natural resources or raw materials  i.e. coffee in South America or oil in Saudi Arabia TRADING AMONG NATIONS

10.  Comparative Advantage – situation in which a country specializes in the production of a good or service at which it is relatively more efficient  i.e. a country produces both computers & clothing better than any other country; but the market for computers is stronger/more profitable; so country decides to invest in computer production and buy clothing elsewhere TRADING AMONG NATIONS

11.  Foreign exchange rates – the value of a currency in one country compared with the value in another  Effects imports/exports  Example:  If the Toyota Motor Company can produce a car for export in Japan at a cost of 2,000,000 Yen, how much does that car cost in U.S. dollars?  If the exchange rate for Yen/U.S. Dollar is 200.00 yen to the dollar, the car would have to cost $10,000 at the factory for the Toyota company to realize its costs.  Toyota cars typically sell for $20,000+ US dollars, making the car very profitable to export to the US (for Japan)  As Yen/US Dollar exchange rates change to 100.00, it now costs $20,000 at the factory to make, therefore reducing the Japanese profit and lowering the incentive to export to the US INTERNATIONAL CURRENCY

12.  Factors affecting currency values  Balance of payments – when favorable, stronger currency  Economic conditions – when buying power of currency declines (i.e. high inflation), value of currency declines  Political disability – country instability weakens currency INTERNATIONAL CURRENCY

13. RECENT VALUES OF CURRENCIES Source: http://www.xe.com/http://www.xe.com/

14.  Calculate the cost of the following 5 items in local currency: ASSIGNMENT ItemUS$ Pack of gum$1.00 Pair of jeans$50.00 iPad2$500.00 Ford Focus$15,000 New home$300,000