Unit 6- Foreign Sector International Trade, Balance of Payments, and Exchange Rates.

Slides:



Advertisements
Similar presentations
Unit: International Trade Topic: Balance of Payments and the Foreign Exchange Market.
Advertisements

Balance of Payments AP Macroeconomics Ms. Flora. Balance of Payments Measure of money inflows and outflows between the United States and the Rest of the.
Exchange Rates and the Open Economy Chapter 18. Foreign Exchange Market Abbreviation: FOREX Over a trillion dollars worth are traded daily. Most trading.
Economic Goal 4: External Stability Exchange Rate.
International Trade Class 10. The production possibilities frontier  Australia can produce either 100 Agricultural products or 50 electronic products.
Unit 10 - Foreign Exchange Rates and Payment Balances Macroeconomics.
Copyright McGraw-Hill/Irwin, 2002 U.S. Export Transaction U.S. Import Transaction Balance of Payments Flexible Exchange Rates The Market for Currency.
International Trade. Exports v. Imports Exports – goods sold to other countries Imports - goods bought from other countries.
Open-Economy Macroeconomics: Basic Concepts
Chapter 18: International Trade. McGraw-Hill/Irwin Copyright  2007 by The McGraw-Hill Companies, Inc. All rights reserved Trade Facts Principal.
November The Balance of Payments A record of the value of all the transactions between the residents of one country with the residents of all other.
Copyright McGraw-Hill/Irwin, 2002 U.S. Export Transaction U.S. Import Transaction Balance of Payments Flexible Exchange Rates The Market for Currency.
Balance of Accounts and Foreign Exchange Markets
Chapter 7.1 Trade Between Nations.
Frank & Bernanke Ch. 16: International Trade and Capital Flows.
Chapter 20Copyright ©2010 by South-Western, a division of Cengage Learning. All rights reserved 1 ECON Designed by Amy McGuire, B-books, Ltd. McEachern.
Balance of Payments Accounts Payments from foreigners Payments to foreigners Net S/P of goods & services $1,994 billion$2,523 billion-$529 billion Factor.
International Trade. Section 1  Every country has different types and quantities of land, labor and capital  Specialization can help countries use.
Warm up 10 1.How does the movement of people, things and ideas affect you? 2.What do you think globalization means? 3.What does GDP measure? 4.What is.
1 Chapter 7 Section 1 Global Economics Objectives Describe how international trade benefits consumers. Explain the significance of currency exchange rates.
Unit 5 International Trade and Finance 1. Export Goods & Services 16% of American GDP. US Exports have doubled as a percent of GDP since Closed.
Unit-5 Macro Review Foreign Exchange & Balance of Payments.
Ch. 16: International Trade ECONOMICS 12. International Trade Canadians have become accustomed to consuming goods & services from all parts of the world.
Exchange Rates, the Balance of Payments, & Trade Deficits Chapter 21 10/5/
Market vs. Command Freedom of choice We decided what to produce Prices determined by supply and demand Competition Quality/variety of products Private.
Foreign Exchange Rates: the value of one currency in relation to another currency Can be expressed as currency vs. one dollar or as the dollar value.
Balance of Payments, Exchange Rates & Trade Deficits
IGCSE®/O Level Economics
May 5, Begin Unit 6: 10-15% of AP Macro Exam Open Economy: International Trade and Finance 2.Comparative Advantage Review On Website 3.Unit 6 Lesson.
Chapter 17 International Trade. Why Do Nations Trade? There is an unequal distribution of resources There is an unequal distribution of resources High.
Chapter 17 Trading With Other Nations. Net Exports = Exports – Imports Imports – Goods they produce and sell here (14%) –D–Dependence: Oil Exports – Goods.
Chapter 5: Foreign Exchange Markets and the Balance of Payments
1 Chapter 21 International Trade and Finance ©2004 Thomson/South-Western Key Concepts Key Concepts Summary Summary Practice Quiz.
# McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. International Trade and Exchange Rates 20.
Trade Barriers Quotas Sanctions Tariffs Subsidies.
16–1 Copyright  2005 McGraw-Hill Australia Pty Ltd PowerPoint® Slides t/a Principles of Macroeconomics by Bernanke, Olekalns and Frank Chapter 16 The.
Balance of Payments 4.5. Current Account The Balance of Payment is a record of all in – and outflows in a country arising from economic activity in the.
Unit 5-1: International Trade and Foreign Exchange 1.
Unit 5: International Trade and Foreign Exchange
International Trade The Balance of Payments (BoP).
CONVERTING CURRENCIES AND ASSESSING VALUE Foreign Exchange.
© 2013 Cengage Learning. All rights reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
7 th Grade Civics Miss Smith *pgs (21.4).
INTERNATIONAL TRADE VOCABULARY Import – a product purchased from another country. Export – a product sold to another country. Global interdependence –
 Who can produce more freezers?  Germany  Who can produce more dishwashers?  Germany Therefore, Germany has an absolute advantage in the production.
The Open Economy: International Trade and Finance C+I+G+(X-M)
Macro Review Day 5. International Trade Policy, Comparative Advantage, and Outsourcing 9 Balance of Trade Trade deficit = exports < imports Trade surplus.
A. CreditCapital B. CreditCurrent C. DebitCapital D. DebitCurrent E. DebitFinancial.
Unit 4: International Economics The Basics of International Trade.
International Economics. Law of comparative advantage – Nations can mutually benefit from trade so long as relative production costs differ. Comparative.
International Trade 1. Absolute and Comparative Advantage 2.
Unit 5: International Trade and Foreign Exchange 1.
Unit 5: International Trade and Foreign Exchange 1.
Unit 5: International Trade 1. International Trade Why do people trade? 2.
20b – International Trade and Foreign Exchange Markets
Unit 5: International Trade
International Trade.
AIM: How can U. S. trade impact us as consumers
Foreign Exchange & Balance of Payments
WARNING!!!!!!!!!!!!!!!!!!!!!!!!! THE MOST IMPORTANT FACTOR IN DETERMINING FOREIGN EXCHANGE IS INTO WHICH NATION IS THE MONEY FLOWING. The currency of.
Section 8.
INTERNATIONAL ECONOMICS
International Economics
Movie Response What are the advantages, disadvantages of Globalization? What is the difference between comparative and absolute advantage? Identify and.
International Economics
International Economics
International economics
You will be given the answer. You must give the correct question.
International Economics
Balance of Payments & Exchange Rates
Presentation transcript:

Unit 6- Foreign Sector International Trade, Balance of Payments, and Exchange Rates

Why Trade? Specialization and trade based on comparative advantage benefits both trading partners Even if one country has an absolute advantage in all production

Free Trade For example, many of us have our shirts laundered at professional cleaners rather than wash and iron them ourselves. Anyone who advised us to “protect” ourselves from the “unfair competition” of low-paid laundry workers by doing our own wash would be thought looney. Common sense tells us to make use of companies that specialize in such work, paying them with money we earn doing something we do better. -Library of Economics

Free Trade For example, many of us have our shirts laundered at professional cleaners rather than wash and iron them ourselves. Anyone who advised us to “protect” ourselves from the “unfair competition” of low-paid laundry workers by doing our own wash would be thought looney. Common sense tells us to make use of companies that specialize in such work, paying them with money we earn doing something we do better.

Free Trade It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy.... If a foreign country can SUPPLY us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage. – Adam Smith

Current Account Balance of Trade (net exports) – Exports – Imports – US has a balance of trade deficit – Goods-visible trade – Services- invisible trade *Largest component of current account

Current Account Balance of Trade (net exports) – Exports – Imports *Largest component of current account Net Investment Income – Examples Dividends (profit from stock) Interest (return on bonds) Rent (from real estate holdings) – Payments out of US are a debit – Receipts from foreign countries are a credit

Current Account Balance of Trade (net exports) – Exports – Imports *Largest component of current account Net Investment Income Net (unilateral) Transfers – Foreign Aid – Migrant income sent home

Capital Financial Accounts Capital Account – Debt Forgiveness Financial Account – Purchase and sale of real or financial assets – Real Assets: Real Estate, Factory – Financial Asset: Stocks and bonds – Foreigner purchases US Asset- credit – American purchases foreign asset- debit

Trade Barriers Tariffs – Revenue- What type of goods? – Protective Subsidy- ? Import Quotas Embargo Sanctions

Arguments for Trade Limitations National Defense Anti-Dumping Save Jobs Infant Industry Protection *Bottom Line: Limitations on trade create inefficiencies and increase domestic prices

Trade Agreements NAFTA World Trade Organization (WTO) European Union

Financial Account and Loanable Funds Capital Inflows (credits to Financial Account) – Increase the supply of loanable funds Capital Outflows (debits to Financial Account) – Decrease the supply of loanable funds

Foreign Exchange and Exports

Foreign Exchange and Trade Balance 1 US Dollar = 2 Yuan (depreciated US dollar) 1 US Dollar = 6.2 Yuan (current) 1 US Dollar = 8 Yuan (appreciated US dollar) If the US dollar appreciates will the US import more or less from China? If the US dollar depreciates will the US import more or less from China?

Foreign Exchange Market Dollar Appreciation – Dollar becomes more expensive – Foreign goods become relatively cheaper (In. imports) – US goods become relatively more expensive (D Exports) – Current Account Toward deficit

Foreign Exchange Market Dollar Depreciation – Dollar becomes less expensive – Foreign goods become relatively expensive (D imports) – US goods become relatively cheaper (Increase Exports) – Current Account Toward surplus

Shifters (Big Four)- Foreign Exchange Change in Taste – Popular country experiences appreciation Change in Relative Income – Slower growing income country experiences appreciation Change in Relative Inflation Rates Relative Interest Rates

Shifters (Big Four)- Foreign Exchange Change in Taste – Popular country experiences appreciation Change in Relative Income – Slower growing income country experiences appreciation Change in Relative Inflation Rates – Lower inflation rate country experiences appreciation Relative Interest Rates

Shifters (Big Four)- Foreign Exchange Change in Taste – Popular country experiences appreciation Change in Relative Income – Slower growing income country experiences appreciation Change in Relative Inflation Rates – Lower inflation rate country experiences appreciation Relative Interest Rates – Higher interest rate country experiences appreciation

Shifters (other)- Foreign Exchange Expected Returns on Investment Currency Speculation

F. Based on 5 year data, what are 2 things that could have caused the change in exchange rate? Use each shifter once Draw the FOREX market for each country

Market or Command North Korea free enterprise capitalism consumer sovereignty competition more efficient better quality profit motive government control government ownership no motivation no private property rights prices determined by s and d lack economic freedom United States?