POB 1.03 Part 1

1
POB 1.03 Part 1

• Understand business in the global marketplace.

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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

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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

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Balance of Trade

• Balance of Trade difference between a countrys
  total exports and total imports
• Trade surplus is favorable
• exports gt imports
• Trade deficit is unfavorable
• Imports gt exports
• Can have a surplus with one country and deficit
  with another
• Dont want to be dependent on other countries

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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 gt out
• Unfavorable out gt 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

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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