Embed Size (px)
Citation preview
UNIT 2 – BUSINESS IN THE GLOBAL ECONOMY
Unit 2.01International Business Basics
Imports
Exports
Balance of Trade
Balance of Payments
Exchange Rate
KEY TERMS
items bought from other countries
US #1 importer in the world
In 2014, the US imported $2.41 Trillion
Top US imports:1. Oil2. Machines, engines, pumps 3. Electronic equipment4. Vehicles5. Medical, technical equipment
Note: US imports ALL our bananas, coffee, cocoa, spices, tea, silk, and crude rubber
IMPORTS
goods and services made in the US that are sold to other countries
US 2nd largest exporter in the world (behind China)
In 2014, the US exported $1.623 TrillionTop US Exports
1. Machines, engines2. Electronic equipment3. Oil4. Vehicles5. Aircraft, spacecraft
EXPORTS
Difference between a country’s total exports and total imports
Trade Surplus Export (sells) more than it imports (buys) Favorable balance of trade
Trade Deficit Imports (buys) more than it exports (sells) Unfavorable balance of trade
BALANCE OF TRADE
US BALANCE OF TRADE
Current U.S. Trade Deficit - $41.8 Billion
TOP 15 US TRADE PARTNERS
U.S. TOP TRADING PARTNERS
Rank Country Exports Imports Total Trade Trade Balance
- World 1,620,532 2,347,685 3,968,217 -727,153- European Union 276,142 418,201 694,343 -142,0591 Canada 312,421 347,798 660,219 -35,3772 China 123,676 466,754 590,430 -343,0783 Mexico 240,249 294,074 534,323 -53,8254 Japan 66,827 134,004 200,831 -67,1775 Germany 49,363 123,260 172,623 -73,8976 South Korea 44,471 69,518 113,989 -25,0477 United Kingdom 53,823 54,392 108,215 -5698 France 31,301 46,874 78,175 -15,5739 Brazil 42,429 30,537 72,966 11,892
10 Taiwan 26,670 40,581 67,251 -13,911
Difference between the amount of money that comes in to a country and the amount of money that goes out
Positive – when more money coming in to a country than going out
Negative – when more money going out of a country than coming in
BALANCE OF PAYMENT
Absolute Advantage – exists when a country can produce a good or service at a lower cost than other countries Typically results from an abundance of natural resources
or raw materials i.e. coffee in South America or oil in Saudi Arabia
TRADING AMONG NATIONS
Comparative Advantage – situation in which a country specializes in the production of a good or service at which it is relatively more efficient i.e. a country produces both computers & clothing better
than any other country; but the market for computers is stronger/more profitable; so country decides to invest in computer production and buy clothing elsewhere
TRADING AMONG NATIONS
Foreign exchange rates – the value of a currency in one country compared with the value in another Effects imports/exports Example:
If the Toyota Motor Company can produce a car for export in Japan at a cost of 2,000,000 Yen, how much does that car cost in U.S. dollars?
If the exchange rate for Yen/U.S. Dollar is 200.00 yen to the dollar, the car would have to cost $10,000 at the factory for the Toyota company to realize its costs.
Toyota cars typically sell for $20,000+ US dollars, making the car very profitable to export to the US (for Japan)
As Yen/US Dollar exchange rates change to 100.00, it now costs $20,000 at the factory to make, therefore reducing the Japanese profit and lowering the incentive to export to the US
INTERNATIONAL CURRENCY
Factors aff ecting currency values Balance of payments – when favorable, stronger currency Economic conditions – when buying power of currency
declines (i.e. high inflation), value of currency declines Political disability – country instability weakens currency
INTERNATIONAL CURRENCY
Calculate the cost of the following 5 items in local currency:
ASSIGNMENT
Item US$
Pack of gum $1.00
Pair of jeans $50.00
iPad2 $500.00
Ford Focus $15,000
New home $300,000
