C HAPTER 15 – I NTERNATIONAL T RADE

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T RADE Trading is the Buying (importing) & Selling (exporting) of different products between countries. An Open Economy is an economy that engages in international trade.

T RADE Domestic Trade is the buying and selling of goods & services in our own country. Foreign trade (or international trade) means selling goods and services to, and buying goods and services from, other counties.

I NTERNATIONAL T RADE Some countries have a natural advantage over other countries in the production of one or more good or services. Can you think of examples of these countries? Countries tend to concentrate on the production of the goods & services in which they have an advantage & import the other goods they need.

I NTERNATIONAL T RADE International trade is subdivided into visible and invisible trade. Visible trade deals with physical products that can be seen going out of, or coming into the country. Invisible trade deals with services. No physical product can be seen going out of, or coming out of the country as a result of the sale or purchase of services.

W HO ARE OUR MAIN T RADING P ARTNERS ?

COUNTRYCURRENCYLANGUAGE USADollarEnglish BritainSterlingEnglish EuropeEuro + others Various Japan (importing) Japanese YenJapanese

T RADING GAME You are a country and on your card you have a certain amount of commodities such as Energy, Manufactured Goods, Food & Nuclear Waste. On your card is what you need to achieve – the amount of commodities stated on your Country Card. You have to trade with each other in order to achieve your needs. There is no stated exchange rate – you decide on what you will buy and sell commodities for.

I MPORTS An import is any good or service purchased by the residents of a country that causes money to go out of the country. Importing: buying goods & services from other countries. Foreign goods and services that we buy in Ireland. Money leaves Ireland.

V ISIBLE I MPORTS Goods which are bought from other countries. Money leaves the country. Examples include: Citrus fruit Wine Cars

I NVISIBLE I MPORTS Services that are bought from other countries. Money leaves the country. Examples include: Irish person on holiday in USA JLS playing in concert in Dublin French horse winning Irish Grand National

E XPORTS An export is a good or service provided by the residents of a country that causes money to come into the country when sold. Exporting: selling goods & services to other countries. Irish goods and services that we sell to foreign countries. Money comes into the country.

V ISIBLE E XPORTS Irish goods that are sold to foreign countries. Money comes into the country. Examples include: Irish beef sold abroad. Guinness sold to France Waterford Crystal sold to USA.

I NVISIBLE E XPORTS Irish services that are sold to foreign countries. Money comes into the country. Examples include: Bressie playing a concert in Wembley in London. US citizen on holiday on Ireland. Irish horse winning the English Grand National.

H OMEWORK Find an example of an import (visible/invisible) and an export (visible/invisible) over the weekend and take a photo of it using a camera phone. Share the file using Google drive so we can make a class video explaining what imports and exports are.

H OMEWORK For example, Irish farmer selling eggs in Tesco in England – visible export.

H OMEWORK For example, Irish person travelling to England for a gig – invisible import.

C LASSWORK Item Visible Export Invisible Export Visible Import Invisible Import Justin Bieber playing at a concert in the O2 in Dublin An Austrian restaurant buys Irish beef Irish football supporters travelling to Poland for the Euros An Irish restaurant buys lemons from Spain Tourists from Italy visit Kerry on their holidays Irish golfer Rory McIlroy wins the US Open An Irish family go to Greece on their holidays A Welsh rugby team travel on Irish Ferries for a match in the Aviva A fancy bar in New York buys Waterford Crystal glasses An Irish businessman purchases a BMW car

C LASSWORK

I NTERNATIONAL T RADE Monday, 25 th February 2013

W ORKBOOK Q UESTION 1 PAGE 87

W ORKBOOK Q UESTION 2 PAGE 87

W ORKBOOK Q UESTION 3 PAGE 87

H OMEWORK C ORRECTIONS Get a new Business Studies copybook! Your book was printed in 2010 but our economic situation is constantly changing. Your book outlines the advantages of economic growth but not the consequences of negative economic growth (recession). State & explain, expand & give an example. Don’t forget to state whether your budget is a surplus/deficit. 28 mins per question!

2012 E XAM P APERS Q UESTION 3

2008 E XAM P APERS Q UESTION 3

28 V ISIBLE E XPORTS AND V ISIBLE I MPORTS Visible exports are physical products produced by the residents of a country that cause money to come into the country when sold. Examples of Ireland’s visible exports are: Visible imports are physical goods purchased by the residents of a country that cause money to go out of the country. Examples of Ireland’s visible imports are:

29 I NVISIBLE E XPORTS AND I NVISIBLE I MPORTS Invisible exports are services provided by the residents of a country that cause money to come into the country. Examples: incoming tourists and the sale of financial services abroad. Invisible imports are services purchased by the residents of a country that cause money to go out of the country. Examples: outgoing tourists and “foreign” pop groups playing in Ireland.

T HE B ALANCE OF T RADE The Balance of Trade is the difference between the value of visible exports and visible imports. Ireland’s Balance of Trade figures (1990 – 2011)

T HE B ALANCE OF T RADE If the value of visible exports is greater than the value of visible imports  Positive figure  Surplus  Favourable Balance of Trade Balance of Trade Total value of visible exports €20,000 million Total value of visible imports €15,000 million Balance of Trade€5,000 million

T HE B ALANCE OF T RADE If the value of visible exports is less than the value of visible imports  Negative figure  Deficit  Unfavourable Balance of Trade Balance of Trade Total value of visible exports €20,000 million Total value of visible imports €28,000 million Balance of Trade(€8,000 million)

T HE B ALANCE OF T RADE Balance of Trade Total value of visible exports €30,000 million Total value of visible imports €30,000 million Balance of Trade0 If the value of visible exports equals the value of visible imports  Balanced Balance of Trade

W ORKBOOK QUESTION 4 PAGE 88

W ORKBOOK Q UESTION 5 PAGE 88

B ALANCE OF I NVISIBLE T RADE The Balance of Invisible Trade = Invisible Exports – Invisible Imports

W ORKBOOK Q UESTION 6 PAGE 88

W ORKBOOK Q UESTION 7 PAGE 88

B ALANCE OF P AYMENTS The Balance of Payments is the difference between the value of all goods and services that Ireland exports and imports. The BOP shows both visible and invisible trade. Balance of Payments = Total Exports – Total Imports

B ALANCE OF P AYMENTS CAN BE ……. Surplus: Exports ________________ Imports Deficit: Imports ________________ Exports Balanced: Exports ______________ Imports

C ALCULATING B ALANCE OF P AYMENTS – T EXTBOOK Q UESTION 14, PAGE 153 Balance of Payments Total Exports (€500 + €400)€900m Less Total Imports (€450 + €500) (€950m) BOP Deficit(€50m)

T EXTBOOK Q UESTION 15, PAGE 153

Balance of Trade Visible exports€800 million Less Visible imports(€650 million) BOT Surplus€150 million Balance of Payments Total Exports€1,350 million Less Total Imports(€1,320 million) BOP Surplus€30 million

2NK B USINESS S TUDIES Friday, 1 st March 2013

G ROUP W ORK E XERCISE As a group, you need to decide whether the items on your Country card are visible imports or exports? When you have decided what category the item belongs to – you need to calculate the country’s Balance of Trade, Balance of Invisible Trade and the Balance of Payments.

G ROUP W ORK A NSWERS CountryBalance of Trade Balance of Invisible Trade Balance of Payments Ireland Spain Germany Netherlands France Italy

O VERCOMING A B ALANCE OF T RADE D EFICIT Increase exports Reduce imports Buy Irish (import substitution) Source raw materials at home Only use Irish services

I MPORT S UBSTITUTION What is Import Substitution?

W HAT IS I MPORT S UBSTITUTION ? Import Substitution is the replacing of imported goods with domestically produced goods on the home market. Buying Irish goods instead of foreign goods. Eg. buying Irish potatoes instead of Spanish potatoes.

B ENEFITS OF A B ALANCE OF P AYMENTS S URPLUS More money coming into the country. This money can be used to pay off some of our debt or reduce tax. More money and jobs and a better standard of living for Irish people.

W HAT PROBLEMS WILL A B ALANCE OF P AYMENTS DEFICIT CAUSE ? Too much money leaving the country. Government will have to raise taxes and/or borrow. Irish people will lose their jobs.

H OW CAN A B ALANCE OF P AYMENTS D EFICIT BE REDUCED ? Import substitution: Buy Irish! Government Agencies such as Failte Ireland and An Bord Bia can promote/market Irish exports.

T URN TO YOUR NEIGHBOUR Why does Ireland export goods & services? Write down your own list of reasons in your worksheet. Turn to your neighbour and compare your list of reasons. Why does Ireland import goods & services? Write down your own list of reasons in your worksheet. Turn to your neighbour and compare your list of reasons.

W HY DO WE EXPORT ? To earn money and obtain foreign currency needed to buy our imports. Ireland is a small country so we need a wider market such as EU, USA etc. Ireland exports in order to create employment - more exports means more jobs are created. Ireland exports in order to sell off our surplus production. Selling the surplus goods abroad earns extra income for these countries.

W HY DO WE IMPORT ? To obtain raw materials, capital goods & consumer goods that are not available in Ireland. For example, olive oil, televisions and coffee To avail of services not in Ireland. For example, concerts, foreign holidays……… To have variety and choice of goods & services.

N OTES Balance of Trade = Visible Exports – Visible Imports Balance of Invisible Trade = Invisible Exports – Invisible Imports Balance of Payments = Total Exports – Total Imports

T HE EU What is the EU? The European Union is an economic & political partnership between 27 democratic European countries. What is the Eurozone? The Eurozone is a collection of 17 countries that used a common currency, the Euro. When was the Euro € introduced? 2002

H OMEWORK You were given an EU member country to research for today’s class. As part of your research, you had to find out 10 interesting facts about the country including what language they speak and what currency they use. Everyone needs to state their country, currency & language and your top 3 interesting facts about the country. You should complete the worksheet while you listen to your classmates.

H OMEWORK Read over pages 144 – 150 of “Ready for Business” Textbook. We will have a test on Chapter 15 next Friday.

I NTERNATIONAL T RADE

H OMEWORK Revise Chapter 15 & study for a class test. We will have a test on Chapter 15 next Friday in a computer room.

I MPORT S UBSTITUTION Did you think about any goods or services you purchased over the weekend? If they were imports – could you have substituted them with Irish goods? Is Import substitution difficult or easy?

P ROBLEMS CONNECTED WITH FOREIGN TRADE. Language differences makes communications more difficult. Transport: all Irish exports must bear the additional cost of sea or air transport, as well as the normal road or rail transport. Insurance costs are high due to the additional handling of goods arising from extra transport methods required. Different countries set different minimum standards of production and different specifications for products. Currencies change in value on a day to day basis adding greater risk for importers.

M IDTERM B REAK T RIP

R ULES FOR CONVERTING CURRENCY Converting Euro to foreign currency: Multiply by the sell rate. Converting foreign currency to Euro: Divide by the buy rate.

C URRENCY C ONVERSION I have €100 and I want to convert this to Dollars. €100 x $1.33 = $133 I have £500 and I want to convert this to Euros. £500 ÷ €1.17 = € Bank Sell Rate €1 = £0.85 €1 = $1.33 Bank Buy Rate $1 = €0.74 £1 = €1.17

W ORKBOOK Q 12, PAGE 90

W ORKBOOK Q 13, PAGE 90

P AIR W ORK You are a bank official. You must calculate how much foreign currency the customer will receive. Remember to Multiply by the sell rate. You are going on your holidays to:

2011 E XAM P APERS - Q UESTION 3 P APER 1

2010 E XAM P APERS – Q UESTION 3 P APER 1

E XAM Q UESTION 2006 P1 Q 3. Balance of Trade Visible Exports €540m Less Visible Imports €400m Surplus €140m

C ONTINUED.. Balance of Invisible Trade Invisible Exports €620m Less Invisible Imports €260m Surplus €360m

C ONTINUED … Balance of Payments Total Exports ( ) €1160 Less Total Imports ( ) € 660 Surplus €500