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International Business > The Money of International Business
The Money of International Business
• Exchange Rates
• Balance of Trade
• Balance of Payments
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International Business > The Money of International Business
Exchange Rates
• An exchange rate between two currencies is the rate at which one currency will
be exchanged for another.
• Currency may be free-floating, pegged or fixed, or a hybrid.
• A currency will tend to become more valuable whenever demand for it is greater
than the available supply.
• Increased demand for a currency can be due to either an increased transaction
demand for money or an increased speculative demand for money.
Exchange Rates
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International Business > The Money of International Business
Balance of Trade
• A positive balance is known as a "trade surplus" if it consists of exporting more
than is imported; a negative balance is referred to as a trade deficit or, informally,
a trade gap.
• Measuring the balance of trade can be problematic because of problems with
recording and collecting data.
• The cost of production, the cost and availability of raw materials, and exchange
rate movements are some factors that can affect the balance of trade.
US Trade Balance
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International Business > The Money of International Business
Balance of Payments
• Balance of payments (BOP) accounts are an accounting record of all monetary
transactions between a country and the rest of the world.
• Sources of funds for a nation, such as exports or the receipts of loans and
investments, are recorded as positive or surplus items.
• Uses of funds, such as for imports or to invest in foreign countries, are recorded
as negative or deficit items.
• When all components of the BOP accounts are included they must equal zero
with no overall surplus or deficit.
Current Account Balance, 2006
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Appendix
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International Business
Key terms
• balance of payments an accounting record of all monetary transactions between a country and the rest of the world
• balance of trade The difference between the monetary value of exports and imports in an economy over a certain period of
time.
• Capital Account In macroeconomics and international finance, the capital account (also known as financial account) is one of
two primary components of the balance of payments, the other being the current account. Whereas the current account reflects
a nation's net income, the capital account reflects net change in national ownership of assets.
• Current Account In economics, the current account is one of the two primary components of the balance of payments (the other
being the capital account). It is the sum of the balance of trade (i.e., net revenue on exports minus payments for imports), times
income (earnings on foreign investments minus payments made to foreign investors), and cash transfers.
• exchange rate The amount of one currency that a person or institution defines as equivalent to another currency when either
buying or selling it at any particular moment.
• fixed exchange rate Sometimes called a pegged exchange rate, a type of exchange rate regime wherein a currency's value is
matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as
gold.
• floating exchange rate A floating or fluctuating exchange rate is a type of exchange rate regime wherein a currency's value is
allowed to fluctuate according to the foreign exchange market.
• trade credit a form of debt offered from one business to another with which it transacts
• trade deficit A negative balance of trade.
• trade surplus A positive balance of trade.
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International Business
Current Account Balance, 2006
Current Account balance, 2006, U.S. dollars, per capita
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Wikimedia. "Current Account Balance per capita 2006." Public domain http://commons.wikimedia.org/wiki/File:Current_Account_Balance_per_capita_2006.PNG
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International Business
Exchange Rates
Example of exchange rates display in Thailand.
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International Business
US Trade Balance
U.S. trade balance from 1980-2010
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Wikipedia. "US Trade Balance 1980 2011." Public domain http://en.wikipedia.org/wiki/File:US_Trade_Balance_1980_2011.svg View on Boundless.com
International Business
A system of fixed exchange rates with a provision for the
devaluation of a currency as used by China in the mid-1990s is
called a:
A) Peg
B) Movable peg
C) Free-floating
D) Fixed
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International Business
A system of fixed exchange rates with a provision for the
devaluation of a currency as used by China in the mid-1990s is
called a:
A) Peg
B) Movable peg
C) Free-floating
D) Fixed
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International Business
When global data is added up, exports in the world exceed
imports by about 1%. What is the best explanation for this
calcualtion?
A) The world is running a surplus
B) The data center left out some countries
C) The world, as a whole, overproduces
D) There are transactions that are not legally recorded
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International Business
When global data is added up, exports in the world exceed
imports by about 1%. What is the best explanation for this
calcualtion?
A) The world is running a surplus
B) The data center left out some countries
C) The world, as a whole, overproduces
D) There are transactions that are not legally recorded
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International Business
If a country has a trade deficit, what will occur?
A) Exports will exceed imports
B) Imports and exports will be equal
C) Currency will be devalued
D) Imports will exceed exports
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International Business
If a country has a trade deficit, what will occur?
A) Exports will exceed imports
B) Imports and exports will be equal
C) Currency will be devalued
D) Imports will exceed exports
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Saylor OER. "Business Administration « Saylor.org – Free Online Courses Built by Professors." CC BY 3.0 http://www.saylor.org/majors/Business/
International Business
The term balance of trade incorporates the measure of which of
the following?
A) Imports
B) Imports and Exports
C) Exports
D) Currency
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International Business
The term balance of trade incorporates the measure of which of
the following?
A) Imports
B) Imports and Exports
C) Exports
D) Currency
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Saylor OER. "Business Administration « Saylor.org – Free Online Courses Built by Professors."
CC BY 3.0 http://www.saylor.org/majors/Business/
International Business
Assuming there is a BOP surplus and the country is currenctly
under a fixed exchnage rate system. What action would the
central bank take?
A) Selling the inflow of funds
B) Buying the net inflow of funds
C) Buying the net outflow of funds
D) Nothing under a fixed system
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International Business
Assuming there is a BOP surplus and the country is currenctly
under a fixed exchnage rate system. What action would the
central bank take?
A) Selling the inflow of funds
B) Buying the net inflow of funds
C) Buying the net outflow of funds
D) Nothing under a fixed system
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International Business
Attribution
• Wikipedia. "Balance of payments." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Balance_of_payments
• Wikipedia. "Balance of payments." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Balance_of_payments
• Boundless Learning. "Boundless." CC BY-SA 3.0 http://www.boundless.com//business/definition/capital-account
• Boundless Learning. "Boundless." CC BY-SA 3.0 http://www.boundless.com//business/definition/current-account
• Wikipedia. "Exchange rate." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Exchange_rate
• The Orange Grove. CC BY http://florida.theorangegrove.org/og/file/261bc702-5ae9-6293-d8f9206249327bc5/1/BusinessFundamentals.pdf
• Wikipedia. "floating exchange rate." CC BY-SA 3.0 http://en.wikipedia.org/wiki/floating%20exchange%20rate
• Wikipedia. "fixed exchange rate." CC BY-SA 3.0 http://en.wikipedia.org/wiki/fixed%20exchange%20rate
• Wiktionary. "exchange rate." CC BY-SA 3.0 http://en.wiktionary.org/wiki/exchange+rate
• Wikipedia. "Balance of trade." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Balance_of_trade
• Wikipedia. "Trade credit." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Trade_credit
• Wiktionary. "trade surplus." CC BY-SA 3.0 http://en.wiktionary.org/wiki/trade+surplus
• Wiktionary. "trade deficit." CC BY-SA 3.0 http://en.wiktionary.org/wiki/trade+deficit
• Wiktionary. "balance of trade." CC BY-SA 3.0 http://en.wiktionary.org/wiki/balance+of+trade
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