3-1 International Business Basics

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TRADING AMONG NATIONS

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

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TRADING AMONG NATIONS

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.

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TRADING AMONG NATIONS

http://www.youtube.com/watch?v=RDC2ohDG4BI

http://www.youtube.com/watch?v=5_YPidwfylM

http://www.youtube.com/watch?v=1EbkXmVbTDg

Homework: using the news clip as a guide identify the country of origin of 5 products in your home.

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TRADING AMONG NATIONS

International Business

Business activities needed for creating, shipping, and selling goods and services across borders

Economies are interconnected

Domestic Business

The making, buying, and selling of goods and services within a country

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TRADING AMONG NATIONS

Absolute AdvantageWhen 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: OilBrazil: Coffee

Comparative Advantage

A country specializes in the production of a good or service at which it is relatively more efficient

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TRADING AMONG NATIONS

ImportingItems bought from

other countriesLower CostAvailability of goods

ExportingGoods and services

sold to other countries

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TRADING AMONG NATIONSWithout 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

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TRADING AMONG NATIONS

Some consumers purchase foreign goods, even at higher prices, if they perceive the quality to be better than domestic goods

One of every six jobs in the United States depends on International business.

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TRADING AMONG NATIONS

The United States conducts trade with more than 180 countries.

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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.

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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

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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

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U.S. TRADE BALANCESSLIDE 14

BALANCE OF TRADESLIDE 15

Checkpoint

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.

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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

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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 = 1.02429 USD◦http://www.xe.com/ucc/ (currency converter

website)

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

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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

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