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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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