1. Business in the Global Economy
Business Principles A
Mrs. Sorrell

2. 3.1 International Business Basics
3.1.1—Trade Among Nations
Domestic business
International business, aka foreign or world trade
Absolute Advantage
A country can produce a good or service at a lower cost than other countries
Comparative advantage
A country specializes in the production of goods or services because of efficiency
Imports
Exports
Domestic = making, buying, and selling of goods and services within a country
International = business activities for creating, shipping, and selling goods and services across national borders
US conducts trade with more than 180 countries
Look at the labels in clothing and see where it is made.
Absolute advantage due to an abundance of natural resources or raw materials in a country
South American countries = coffee Saudi Arabia = oil production
Comparative—company can produce smartphones and clothing better than other countries, however, smartphones are in higher demand than clothing. Better to produce smartphones but buy clothing from other countries.
Imports—bought from other countries
Imports account for the total supply of bananas, coffee, cocoa, certain spices, tea, silk, and crude rubber in the US
US buys about half of our crude oil and fish from other countries. 20 to 50 percent of our carpets, sugar, leather gloves, dishes and sewing machines. Also import tin, chromium, manganese, nickel, copper, zinc, and other metals to make other goods.
Consumers sometimes purchase from other countries because of perceived higher quality.
Exports—goods and services sold to other countries
Workers throughout the world use factory and farm machinery made in the US, eat food , use chemicals, fertilizers, medicines and plastics. Other countries prefer our movies, CNN, ESPN, and reading materials published in the US.
One of every six jobs in the US depends on international business

3. What are some advantages and disadvantages of international trade?
Review 3.1.1
What are some advantages and disadvantages of international trade?
Looking at Figure 3-1, how would US manufacturing be affected if these imports were not available?

4. Measuring Trade Relations
Foreign debt—owed to other countries
Balance of trade
Exports > imports = trade surplus
Favorable trade position
Imports > exports = trade deficit
Unfavorable trade position
Country can have a trade surplus with one country and trade deficit with another
Nations have to be concerned with balancing income and expenditures
Buy more than you income = debt
Unfavorable balance of trade = owe money to other countries

5. Measuring Trade Relations, con’t.
Balance of payments—difference between the amount of money coming into a country and the amount that goes out
Positive or favorable
Negative or unfavorable
Money passes from one country to another through investments and tourism
Citizens may invest in foreign countries
Businesses may invest in a factory in another country
One government might give financial assistance or military aid to another country
Tourists’ travel adds to the flow of money from their country to the country they are visiting

6. How does balance of trade differ from balance of payments?
Review 3.1.2
Looking at Figure 3-3, why is it better for a country to export more than it imports?
How does balance of trade differ from balance of payments?

7. International Currency
3.1.3—Money
Three functions
Store of value
Medium of exchange
Unit of measure
Foreign exchange market—banks that buy and sell different currencies
Exchange rate—value of currency in one country compared with the value of currency in another
Fees charged by currency exchange operators
Currencies around the world are a challenge for international trade
Supply and demand affect the value of currency.

8. Factors affecting currency values
Balance of Payments
Favorable = constant or rising currency value
Increased demand for products and currency influence this situation
Economic conditions
Inflation reduces buying power
Interest rates
Political Stability
Sudden changes in government may create an unfriendly setting for foreign business
Risk of losing buildings, equipment or money in foreign banks
Laws that impact foreign businesses in a country reduces confidence in that country’s currency
Unfavorable balance of payments = currency usually declines in value
Interest rates = cost of using someone else's money
Higher interest rates usually create lower consumer demand—causing a reduced demand and then a decline in value

9. Review
Using Figure 3-4, which currency is worth the most in terms of US dollars?
Work with a partner to develop a list of actions to improve a nation’s trade relations. Think of actions that might be taken by businesses, government, workers, consumers, schools, and others.
Complete Review 3.1 on Mindtap