1. Business Administration & Management Mr. Bernstein Theories on International Trade and Investment, pp 98-101 February 26, 2015

2. Business Administration & Management Mr. Bernstein Currencies, or FX Consumer goods are sold in the currency of the consumer: Samsung Galaxy is sold in USD But the producer counts profits in the currency of its host nation What does Samsung do with the USD it collects from customer sales? What is the exchange rate? If Samsung sells more phones in the US, will the KRW rise or fall? 2

3. Business Administration & Management Mr. Bernstein Theories on International Trade Comparative Advantage Theory: Nations should specialize Product Life Cycle Theory: As innovative products mature, producers look harder at overseas sales 3

4. Business Administration & Management Mr. Bernstein Balance of Trade Current Account = value of exports minus value of imports Capital Account = investment funds flowing into or out of a nation The US runs large trade deficit (current account) with China The US runs large capital account surplus – the Chinese invest capital into US businesses and government bonds 4

5. Business Administration & Management Mr. Bernstein Balance of Trade How does a current account deficit affect currency exchange rates? How does currency exchange rates affect returns on capital investments? How do currency exchange rates affect inflation? 5