1. Unit 2.01 International Business Basics
Unit 2 – Business in the global economy
Unit 2.01
International Business Basics

2. Key terms Imports Exports Balance of Trade Balance of Payments
Exchange Rate

3. items bought from other countries
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imports
items bought from other countries
US #1 importer in the world
In 2014, the US imported $2.41 Trillion
Top US imports:
Oil
Machines, engines, pumps
Electronic equipment
Vehicles
Medical, technical equipment
Note: US imports ALL our bananas, coffee, cocoa, spices, tea, silk, and crude rubber
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4. goods and services made in the US that are sold to other countries
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EXPORTS
goods and services made in the US that are sold to other countries
US 2nd largest exporter in the world (behind China)
In 2014, the US exported $1.623 Trillion
Top US Exports
Machines, engines
Electronic equipment
Oil
Vehicles
Aircraft, spacecraft
st time in history, fuel #1!!!!
A decade ago, fuel wasn’t even in top 25!
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5. Difference between a country’s total exports and total imports
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Balance of trade
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 Payment is the difference b/w the amount of money that comes in to a country and the amount of money that goes out. Positive is when more money in that out. Negative is more out than in.
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6. Us balance of trade
Current U.S. Trade Deficit - $41.8 Billion

7. Top 15 us trade partners

8. U.S. Top trading partners
Rank
Country
Exports
Imports
Total Trade
Trade Balance -
World
1,620,532
2,347,685
3,968,217
-727,153
 European Union
276,142
418,201
694,343
-142,059 1
 Canada
312,421
347,798
660,219
-35,377 2
 China
123,676
466,754
590,430
-343,078 3
 Mexico
240,249
294,074
534,323
-53,825 4
 Japan
66,827
134,004
200,831
-67,177 5
 Germany
49,363
123,260
172,623
-73,897 6
 South Korea
44,471
69,518
113,989
-25,047 7
 United Kingdom
53,823
54,392
108,215
-569 8
 France
31,301
46,874
78,175
-15,573 9
 Brazil
42,429
30,537
72,966
11,892 10
 Taiwan
26,670
40,581
67,251
-13,911

9. Balance of payment
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

10. TRADING AMONG NATIONS
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

11. TRADING AMONG NATIONS
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

12. INTERNATIONAL CURRENCY
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 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 , it now costs $20,000 at the factory to make, therefore reducing the Japanese profit and lowering the incentive to export to the US

13. INTERNATIONAL CURRENCY
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

14. RECENT VALUES OF CURRENCIES
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RECENT VALUES OF CURRENCIES
US$, EU, Great Britain Pound, Indian Rupee, Australian Dollar, Canadian Dollar, South African Rand, New Zealand Dollar, Japanese Yen
Source:
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15. assignment
Calculate the cost of the following 5 items in local currency:
Item
US$
Pack of gum
$1.00
Pair of jeans
$50.00
iPad2
$500.00
Ford Focus
$15,000
New home
$300,000