UNIT 2 – BUSINESS IN THE
GLOBAL ECONOMY
Unit 2.01
International
Business
Basics
KEY TERMS
Imports
Exports
Balance of Trade
Balance of Payments
Exchange Rate
IMPORTS
items bought from other countries
 US #1 importer in the world
 In 2014, the US imported $2.41 Trillion
 Top US imports:
1.
2.
3.
4.
5.
Oil
Machines, engines, pumps
Electronic equipment
Vehicles
Medical, technical equipment
Note: US imports ALL our bananas, coffee, cocoa, spices, tea, silk,
and crude rubber
EXPORTS
goods and services made in the US that are sold to other
countries
 US 2 nd largest exporter in the world
(behind China)
 In 2014, the US exported $1.623 Trillion
 T op US Exports
1.
2.
3.
4.
5.
Machines, engines
Electronic equipment
Oil
Vehicles
Aircraft, spacecraft
BALANCE OF TRADE
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
US BALANCE OF TRADE
Current U.S. Trade Deficit
- $41.8 Billion
TOP 15 US TRADE PARTNERS
U.S. TOP TRADING PARTNERS
Rank
1
2
3
4
5
6
7
8
9
10
Country
World
European Union
Canada
China
Mexico
Japan
Germany
South Korea
United Kingdom
France
Brazil
Taiwan
Exports
Imports
1,620,532
276,142
312,421
123,676
240,249
66,827
49,363
44,471
53,823
31,301
42,429
26,670
2,347,685
418,201
347,798
466,754
294,074
134,004
123,260
69,518
54,392
46,874
30,537
40,581
Total Trade Trade Balance
3,968,217
694,343
660,219
590,430
534,323
200,831
172,623
113,989
108,215
78,175
72,966
67,251
-727,153
-142,059
-35,377
-343,078
-53,825
-67,177
-73,897
-25,047
-569
-15,573
11,892
-13,911
BALANCE OF PAYMENT
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
TRADING AMONG NATIONS
 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
INTERNATIONAL CURRENCY
 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 $20,000
at the factory to make, therefore reducing the Japanese profit and
lowering the incentive to export to the US
INTERNATIONAL CURRENCY
 Factors af fecting currency values
 Balance of payments – when favorable, stronger currency
 Economic conditions – when buying power of currency declines (i.e.
high inflation), value of currency declines
 Political disability – country instability weakens currency
RECENT VALUES OF CURRENCIES
Source: http://www.xe.com/
ASSIGNMENT
 Calculate the cost of the following 5 items in local currency:
Item
US$
Pack of gum
$1.00
Pair of jeans
$50.00
iPad2
$500.00
Ford Focus
$15,000
New home
$300,000