Understand business in the global marketplace. POB 1.03 Part 1 Understand business in the global marketplace.

Domestic Vs. Foreign Business Domestic Business The making, buying, and selling of goods and services within a country. Foreign Business Business activities needed for creating, shipping, and selling goods and services across international borders Also called international business or world trade

Absolute Vs. Comparative Advantage Absolute Advantage Exists when a country can produce a good or service at a lower cost than other countries (ex. Saudi Arabia and oil) Comparative Advantage Exists when a country specializes in the production of goods and services at which it is relatively more efficient

Imports Vs. Exports Imports – items brought into the US from other countries Common imports: bananas, coffee, cocoa, spices, tea, silk Exports – goods and services sold to other countries Common exports: agricultural products & machinery, medicines, movies, music

Measuring Trade Relations People work to buy things …. We sell our labor for wages We spend wages on goods and services We try to keep spending and income in balance Countries want to keep a balance too

Foreign Debt Foreign Debt is the amount of money a country owes other countries We want to have a balance of trade and a balance of payments

Balance of Trade Balance of Trade – difference between a country’s total exports and total imports Trade surplus is favorable exports > imports Trade deficit is unfavorable Imports > exports Can have a surplus with one country and deficit with another Don’t want to be dependent on other countries

Balance of Payments Balance of Payments – difference between the amount of money that comes into the country and the amount that goes out of it Favorable: $ in > $ out Unfavorable: $ out > $ in How does money go in and out? Investments in companies Financial and military aid Tourism Banks depositing in foreign banks

Foreign Exchange Market Foreign Exchange Market – banks that buy and sell different currencies Exchange Rate – the value of a currency in one country compared with the value in another

What factors affect the exchange rate? Balance of Payments – rate rises when there is a favorable balance Economic Conditions – inflation and high interest rates reduce buying power Political Stability – avoid risk! Changes in govt. party New laws put into place