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