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

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

items bought from other countries CHAPTER 3 12/27/2018 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 ITB

goods and services made in the US that are sold to other countries CHAPTER 3 12/27/2018 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 2011 - 1st time in history, fuel #1!!!! A decade ago, fuel wasn’t even in top 25! ITB

Difference between a country’s total exports and total imports CHAPTER 3 12/27/2018 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. ITB

Us balance of trade Current U.S. Trade Deficit - $41.8 Billion

Top 15 us trade partners

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

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

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

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

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 200.00 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 100.00, it now costs $20,000 at the factory to make, therefore reducing the Japanese profit and lowering the incentive to export to the US

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

RECENT VALUES OF CURRENCIES CHAPTER 3 12/27/2018 RECENT VALUES OF CURRENCIES US$, EU, Great Britain Pound, Indian Rupee, Australian Dollar, Canadian Dollar, South African Rand, New Zealand Dollar, Japanese Yen Source: http://www.xe.com/ ITB

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