Chapter 10
Business in a
Global Economy
Introduction to Business, Business in a Global Economy
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Chapter 10
Learning Objectives
After completing this chapter, you’ll be able to:
1. Explain why nations need to trade with each other.
2. Describe how currency exchange works.
3. State the advantages of protectionism and free trade.
4. Name types of trade barriers.
5. Identify some of the major trade alliances in the world
today.
Introduction to Business, Business in a Global Economy
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Chapter 10
Why It’s Important
Global trade doesn’t just influence
business, it also affects all the
countries and people of the world.
Introduction to Business, Business in a Global Economy
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Chapter 10
Technology’s Influence
on Business
•We are all part of the global marketplace.
•The global marketplace exists anywhere
business crosses national borders.
•Countries can satisfy their citizens’ wants and
needs by buying them in the global market.
Introduction to Business, Business in a Global Economy
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Chapter 10
The Global Marketplace
•The global marketplace works much like a
shopping mall or a supermarket.
•The United States is rich in resources—human,
natural, and production—but it still needs things
from other countries.
Introduction to Business, Business in a Global Economy
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Chapter 10
Figure
10.1
MAJOR EXPORTS AND IMPORTS OF THE UNITED STATES
Look at the graph
to see what
products the
United States
imports and
exports.
Source: Standard & Poor’s
Introduction to Business, Business in a Global Economy
Name the product
that the United
States exports
more than it
imports.
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Chapter 10
Specialization
•Countries specialize in producing certain
goods and services.
•By specializing, countries can sell what they
produce best so they can buy the products
they need from other countries.
Introduction to Business, Business in a Global Economy
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Chapter 10
Specialization
The kinds of resources available to a country
often influence what it specializes in
producing.
A country with little money or advanced
technology but a large population might
specialize in manual labor.
Introduction to Business, Business in a Global Economy
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Chapter 10
Types of Trade
Imports are goods and services that one
country buys from another country.
Exports are goods and services that one
country sells to another country.
Introduction to Business, Business in a Global Economy
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Chapter 10
Types of Trade
Other types of trade include:
•
•
•
•
•
Investment
Exchange of human resources
Tourism
Military aid
Loans
Introduction to Business, Business in a Global Economy
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Chapter 10
Currency
Countries have to pay for each other’s products with
currency. Currency is another name for money.
Just as countries use different languages, they use
different currencies, such as dollars, pesos, and yen.
The foreign exchange market is made up of banks
where different currencies are exchanged.
Introduction to Business, Business in a Global Economy
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Chapter 10
Exchange Rates
The exchange rate is the price at which one currency
can buy another currency.
Exchange rates change from day to day and from
country to country.
How much the currency of a country is worth depends
on how many other countries want to buy its
products.
Introduction to Business, Business in a Global Economy
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Chapter 10
Prices
A company follows the change in exchange rates to
find the best prices for products.
When the value of a country’s currency goes up
compared to another country’s, it has a favorable
exchange rate.
Some countries choose to lower the value of their
currency to bring in more business.
Introduction to Business, Business in a Global Economy
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Chapter 10
Balance of Trade
Balance of trade is the difference in the value
between how much a country imports and how
much it exports.30
Introduction to Business, Business in a Global Economy
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Chapter 10
Balance of Trade
When a country exports more than it imports, it has a
trade surplus.
When a country imports more than it exports, it has a
trade deficit.
A country can have an unfavorable balance of trade
with one country and a favorable balance with
another.
Introduction to Business, Business in a Global Economy
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Graphic Organizer
Chapter 10
Graphic Organizer
How Exchange
Rates Affect the
Balance of Trade
Weak
Currency
Strong
Currency
More
exports
than
imports
Trade
surplus
(leftover
money)
FAVORABLE
BALANCE
OF
TRADE
More
imports
than
exports
Trade
deficit
(debt)
NEGATIVE
BALANCE
OF
TRADE
Introduction to Business, Business in a Global Economy
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Chapter 10
Global Competition
Global competition often leads to trade
disputes between countries.
At the heart of most trade disputes is whether
there should be limits on trade.
Introduction to Business, Business in a Global Economy
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Chapter 10
Protectionism
Protectionism is the practice of putting limits
on foreign trade to protect businesses at
home.
Introduction to Business, Business in a Global Economy
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Chapter 10
Protectionism
Some of the reasons in favor of
protectionism are:
• Foreign competition can lower the demand
•
for products made at home.
Companies at home need to be protected
from unfair foreign competition.
continued
Introduction to Business, Business in a Global Economy
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Chapter 10
Protectionism
• Industries that make products related to national
defense need to be protected.
• The use of cheap labor in other countries can lower
wages or threaten jobs at home.
• A country can become too dependent on another
country for important products like oil, steel, or
grain.
• Other countries might not have the same
environmental or human rights standards.
Introduction to Business, Business in a Global Economy
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Chapter 10
Trade Barriers
To limit competition from other countries,
governments put up trade barriers to keep
foreign products out.
A tariff is a tax placed on imports to increase
their price in the domestic market.
Introduction to Business, Business in a Global Economy
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Chapter 10
Trade Barriers
A quota is a limit placed on the quantities of a
product that can be imported.
An embargo is when the government decides
to stop an import or export of a product.
Introduction to Business, Business in a Global Economy
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Chapter 10
Free Trade
Supporters of free trade believe there
should be no limits on trade.
Introduction to Business, Business in a Global Economy
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Chapter 10
Free Trade
The benefits of free trade are:
• It opens up new markets in other countries.
• It creates new jobs, especially in areas related to global
•
•
•
•
trade.
Competition forces businesses to be more efficient and
productive.
Consumers have more choice in the variety, price, and
quality of products.
It promotes cultural understanding and cooperation
between countries.
It helps all countries raise their standard of living.
Introduction to Business, Business in a Global Economy
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Chapter 10
Trade Alliances
To reduce limits on trade more
countries are forming trade alliances
with each other.
In a trade alliance, several countries
merge their economies into one huge
market.
Introduction to Business, Business in a Global Economy
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Chapter 10
Trade Alliances
NAFTA (North American Free Trade
Agreement) was controversial because some
workers would be displaced when trade
barriers were lowered.
Introduction to Business, Business in a Global Economy
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Chapter 10
Trade Alliances
Some of the major trade alliances in
the world today are:
• NAFTA
• European Union (EU)
• Association of Southeast Asian
Nations (ASEAN)
Introduction to Business, Business in a Global Economy
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Chapter 10
International Business and
Finance Affects Everyone
Understanding international business and finance has
become increasingly important for the consumer,
wage earner, investor, citizen, and business leader.
An understanding of international business helps you
understand why goods and services are at particular
prices.
Introduction to Business, Business in a Global Economy
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Chapter 10
International Business and
Finance Affects Everyone
The business leader of tomorrow will have a
good grasp of international business and
finance.
Introduction to Business, Business in a Global Economy
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