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. ExportsImports – items brought into the US

from other countries◦Common imports: bananas, coffee,

cocoa, spices, tea, silkExports – goods and services sold to

other countries◦Common exports: agricultural products &

machinery, medicines, movies, music

Measuring Trade RelationsPeople 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 DebtForeign Debt is the amount of money

a country owes other countriesWe 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 PaymentsBalance 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 MarketForeign 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