6.03 Determine global trade’s impact on business

decision-making.6.00 Understand economics trends and

communication.

Define the following terms: imports, exports, international trade, absolute advantage, and comparative advantage.

Imports – Goods brought into the country Exports – Goods sent to other countries International Trade – Good exchanged

between countries

5-183 5-184 International Trade

Absolute Advantage - The general ability to produce more goods or services using fewer resources. A person or country has an absolute advantage in production largely due to superior technology or greater technical efficiency.◦ An absolute advantage exists if a person, country,

business, government, or some other entity can produce more output using fewer inputs than a comparable entity.

http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=absolute+advantage

International Trade

Comparative Advantage - The ability to produce one good at a relatively lower opportunity cost than other goods, especially compared to production in another country.◦ While a person, country, business, government, or

other producing entity may or may not have an absolute advantage in production, every producer has a comparative advantage in the production of something.

http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=comparative+advantage

International Trade

Describe reasons that international trade takes place.◦ Comparative advantage◦ Lack of raw materials or production capabilities◦ Desire to build positive relations

List gains from international trade.◦ New products that otherwise wouldn’t be

available◦ One nation exports, another nation imports; both

should benefit

International Trade

Identify ways in which the U.S. economy is affected by international trade.◦ Positive – gain new products or the raw materials

to build products for other countries (Japan)◦ Negative – can lower prices on domestic goods or

if we import too much we go into debt Describe types of trade barriers.

◦ Tariffs, Quotas, Subsidies of domestic industrieshttp://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=international+trade

International Trade

Explain techniques used by governments to improve international trade relations.◦ International labor standards◦ Environmental standards◦ Lowering trade barriers to developing countries◦ World Trade Organization (WTO)

International Trade

Define the terms exchange rate, exchange-rate quotation, free-floating currency, pegged currency, foreign-exchange market, strong/weak dollar, and arbitrage.◦ Exchange rate - The price of the currency of one

country stated in terms of the currency of another country, that is, the rate of exchange of one currency for another. In general, exchange rates reflect the overall health, vitality, and productivity of a nation's economy.

http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=exchange+rate

5-185 5-186 Currency

Exchange-rate quotation - exchange rate quotation is given by stating the number of units of a price currency that can be bought in terms of 1 unit currency. For example, in a quotation that says the EUR-USD exchange rate is 1.2 USD per EUR, the price currency is USD and the unit currency is EUR.http://www.forex-trading-i.com/exchange-rate.html

Free-floating currency - also termed a Flexible Exchange Rate, is an exchange rate determined through the unrestricted interaction of supply and demand in the foreign exchange market

Pegged currency - its value is maintained by the government in question at a fixed rate relative to the other currency. In 1983 the Hong Kong dollar was linked to the United States dollar.http://www.forex-trading-i.com/exchange-rate.html

Foreign-exchange market - A market that trades the currencies of different countries. The foreign exchange market is actually a series of different markets, each exchanging the currency of one nation for that of another nation.

Currency

Strong/weak dollar ◦ Strong means that the dollar is worth more of the foreign

currency◦ Weak means it is worth less

Arbitrage - the activity of exploiting imbalances between two or more markets. Foreign money exchangers operate their entire businesses on this principle. They find tourists who need the convenience of a quick cash exchange. Tourists exchange cash for less than the market rate and then the money exchanger converts those foreign funds into the local currency at a higher rate. The difference between the two rates is the spread or profit.http://www.wisegeek.com/what-is-arbitrage.htm

Currency

Distinguish between direct and indirect exchange-rate quotations.◦ Direct - A foreign exchange rate quoted as the domestic currency per

unit of the foreign currency. In other words, it involves quoting in fixed units of foreign currency against variable amounts of the domestic currency.

◦ Indirect - A foreign exchange rate quoted as the foreign currency per unit of the domestic currency. In an indirect quote, the foreign currency is a variable amount and the domestic currency is fixed at one unit.

http://www.investopedia.com/terms/i/indirectquote.asp#ixzz1h5ca0F5J Interpret exchange rates – how much foreign currency a dollar

will buy Identify factors that increase demand for currencies.

◦ Strong economy for the countries with that currency◦ Weak economy for countries wanting that currency

Explain factors that cause a currency to lose value relative to other currencies.◦ Balance of trade and economic conditions of each country

Discuss how economic factors affect exchange rates.◦ Strong economies strengthen the currency and vice-versa

Currency

Explain how market psychology can affect exchange rates.◦ Money is worth as much as people think it is

Describe how political conditions can influence exchange rates.◦ Politics is believed to directly affect the economy

Distinguish between free-floating and pegged currency.◦ Free floating changes with economic conditions, pegged is

connected to the value of a specific currency Describe factors that influence free-floating currency.

◦ Economy, politics, balance of trade, etc.

Currency

Identify institutions that utilize the foreign exchange market.◦ Governments, companies that trade goods in foreign markets (exporters),

investors, speculators, tourists and banks. Discuss types of financial instruments used in foreign exchange

markets.◦ Currencies

Explain the advantages/disadvantages of a strong U.S. dollar.◦ (A) Can get good deals when traveling abroad, good exchange rate on

imports◦ (D) Exported goods can see lost sales due to being too expensive

Describe the advantages/disadvantages of a weak U.S. dollar.◦ (A) Increased sales of exports◦ (D) Imported goods are more expensive

Explain the risks of speculating on the price of foreign currency.◦ Fluctuations can be hard to predict, government policy changes can

greatly impact the exchange rates

Currency

Describe Hofstede’s dimensions of national cultures (i.e., individualism vs. collectivism, power distance, uncertainty avoidance, masculinity vs. femininity).◦ Individualism vs. Collectivism: Is the culture based

on the importance and freedom of the individual or the good of the society (not mutually exclusive). A society's position on this dimension is reflected in whether people’s self-image is defined in terms of “I” or “we.”

◦ Power distance: the degree to which the less powerful members of a society accept and expect that power is distributed unequally. The fundamental issue here is how a society handles inequalities among people.

http://geert-hofstede.com/dimensions.html

5-187 5-188 Culture and Trade

Uncertainty avoidance: the degree to which the members of a society feel uncomfortable with uncertainty and ambiguity. The fundamental issue here is how a society deals with the fact that the future can never be known: should we try to control the future or just let it happen?

Masculinity vs. femininity: The masculinity side of this dimension represents a preference in society for achievement, heroism, assertiveness and material reward for success. Society at large is more competitive. Its opposite, femininity, stands for a preference for cooperation, modesty, caring for the weak and quality of life. Society at large is more consensus-oriented.http://geert-hofstede.com/dimensions.html

Culture and Trade

Explain why business subcultures shape the behaviors of businesspeople.◦ People adapt to what is expected of them if they wish to be

successful Explain how language impacts knowing when and how

business will be conducted.◦ Clarity of communication

Explain how culture influences communication.◦ What is acceptable and expected

Discuss how the interrelationship of business law and religion impacts international business activities.◦ What culture is prevalent and set up the ethics of the county?◦ Theocracy?◦ Understanding of different ways or must it be done only one

way?

Culture and Trade

Identify ways to overcome issues with the crossover of business law and religion in international business activities.◦ Study your clients, learn about what is important and

what is acceptable and expected◦ Carefully design ads, and even packaging to fit into

the culture Describe how corruption impacts international

business activities.◦ Some cultures allow those with power to exercise it

for their own benefit (bribes)◦ Not following the norms could hinder your business,

but following the foreign norms could get you in trouble in America

Culture and Trade

Explain how a country’s level of involvement impacts international trade.◦ What can the country and its citizens handle?

Discuss how culture can hamper international trade.◦ Cultures can clash in how they chose to interact.

What is acceptable and expected in one might be criminal in the other.

◦ Large and small mistakes can impact the future of commerce.

Culture and Trade

Explain how culture can impact trade partner selection.◦ The culture affects what the individuals will find

acceptable and pleasing◦ Fitting into the culture will improve the odds of

doing business successfully Describe how culture can impact

negotiations in international trade.◦ Differing views can emphasize different parts of

the negotiation process or the items being traded

Culture and Trade

Discuss how culture can impact product delivery in international trade.◦ What value does the sending/receiving country

place on speedy and efficient delivery?◦ Is rest as important as work? (Spain and the

siesta) ◦ What is good enough condition?

Culture and Trade

Explain how positive/negative experiences with a culture can update one’s beliefs.◦ We all make judgments

Describe how culture can impact the selection of trade goals in international trade.◦ What is important in that culture affects what will

be important in trade

Culture and Trade