POB 1.03 Part 1

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
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. 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
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
◦ Countries want to keep a balance too
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
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
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 > $ out
◦ Unfavorable: $ out > $ in
How does money go in and out?
Investments in companies
Financial and military aid
Banks depositing in foreign banks
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
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
 Political Stability – avoid risk!
◦ Changes in govt. party
◦ New laws put into place