International Business Basics 3-1

Trading Among Nations Domestic Business International Business (Foreign or world trade) Making, buying, and selling of goods and services within a country. Business activities needed for creating, shipping, and selling goods and services across national borders The U.S trades with over 180 different countries

Absolute Advantage When a country can produce a good or service at a lower cost than other countries.

Comparative Advantage If a country has an absolute advantage in more than one area. ▫Must determine how to maximize economic wealth

Imports Items bought from other countries Without foreign trade, many things you buy would cost more or not be available!

Exports Goods and services sold to other countries One out of every six jobs in the U.S. depends on international business

Foreign Debt Amount a country owes to other countries

Balance of Trade Difference between a country’s total exports and total imports. Export > Import = Trade Surplus (Favorable) Import > Exports = Trade deficit (Unfavorable)

Balance of Payments Difference between the amount of money that comes into a country and the amount that goes out of it. ▫Positive (Favorable) A nation receives more money in a year than it pays out ▫Negative (Unfavorable) A nation spending more than it brings in

Exchange Rates Value of a currency in one country compared with the value in another country

Factors Affecting Currency Values Balance of Payments ▫Favorable balance of payments, currency is usually constant or rising Economic Conditions ▫Inflation reduces the buying power of a currency ▫Interest Rates, high interest rates cause decline in currency value Political Stability