CHAPTER 7 INTERNATIONAL BUSINESS

INTERNATIONAL TRADE What Is International Trade? Consists of the exchange of goods and services by different countries. It includes the purchase of American blue jeans in China and the purchase of Belgian chocolate in the United States. Most of the world today depends on international trade to maintain its standard of living. American manufacturers sell automobiles, heavy machinery, clothing, and electronic goods abroad. Argentine cattle ranchers ship beef to consumers in dozens of foreign countries. Saudi Arabian oil producers supply much of the world with oil. In return, they purchase food, cars, and electronic goods from other countries

Trading among nations A domestic company only does business in their own country while an international company will do business in multiple countries. Absolute Advantage- when a country can produce a good or service at a lower cost than other countries. (Example: Columbia= Coffee) Comparative Advantage- a more efficient production method for a product/service. (Example: US= Technology advances)

IMPORTS vs EXPORTS How does importing differ from exporting? Importing is bringing items from other countries into a country. Example: Oil from Middle East Exporting is selling goods and services to other countries. Example: US selling food and medicine to other countries.

Balance of Trade/Payments 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.

BALANCE OF TRADE

INTERNATIONAL CURRENCY (Foreign Exchange Market) Exchange Rate- the value of a currency in one country compared with the value in another country. Interest Rates- the cost of using someone else’s money

INTERNATIONAL BUSINESS ENVIRONMENT (Factors that can affect the currency of a country) Geography Cultural influences Economic development (3 factors) Literacy level Technology Agricultural dependency Political and legal concerns Infrastructure- Country’s transportation, communication, and utility systems.

ELEMENTS OF INTERNATIONAL BUSINESS ENVIRONMENT

TRADE BARRIERS- (RESTRICTIONS TO FREE TRADE) What are three formal (government enforced) trade barriers? Quota- a LIMIT set on imports Example: A US company can only purchase so much of a product from a country. Tariff- a TAX set on imports Example: A US company purchases cheese from Scotland. Embargo- to STOP the import or export to or from a country Example: US placed an embargo on Cuba (except for food and medicine)

MULTINATIONAL COMPANIES (MNC) Organizations that do business in several countries (Home country & Host country) Licensing- to sell the right to use a trademark or brand for royalties. Franchising- the right to use a company name or business Joint Venture- an agreement between 2 or more companies to share a business project

RECENT VALUES OF CURRENCIES

World Trade Organization (WTO)-was created in 1995 to promote trade around the world. ON PAGE 2A/2B of this packet do online research on the following topics. OANDA CURRENCY CONVERTER