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Chapter 5

Chapter 5 Lecture

Management (MGT)
Course Code
Ingrid L.Stefanovic

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Chapter 5 .ppt /01
Laurence, Hugh
MGTA03, Lec. 03
International Trade
National Boundaries and Trade
o What does the economic system look like if we consider nations as economic units?
o All about boundaries ± the boundaries between nations
o Boundaries
o Economies within boundaries
o Doing business across boundaries
o Barriers at the boundary
o Opening the boundary to freer trade
o Within the National Boundary
o Competitive Advantage
If we consider a nation as a unit in the larger world economy, how
competitive is that nation?
What advantages does the nation have as an economic unit
Conditions of advantage
x Factors of production that give a nation an advantage
o Natural resources available within nation
o Trained and capable labour force
o Capital available for business
o Social organization as an advantage
x Demand
o Having a market large enough to support business
o Having a market wealthy enough to purchase
o Having a market otherwise ready to purchase
x Supporting industries
o Local suppliers of raw materials or subassemblies
o Transportation suppliers
o Banking and capital management
x Strategies, structures and rivalries
o Competition that forces you to reduce costs, increase
product quality, became more productive
o Need for innovation
o Technology for the network economy
Consider these various factors to determine the competitiveness of a
national economy
But today the local economy grows as it links to the international economy
The international economy is founded on the technology of a network to
increase information flows
So we might better look at sectors of economies within nations
Then consider how much the international information economy touches
various sectors locally
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Chapter 5 .ppt /02
o Balance of Trade
o How well does a nation do in international trade?
o Balance of trade
Compare exports to imports
If exports exceed imports, the balance of trade is positive, and you have a
trade surplus
If imports exceed exports, the balance of trade is negative, and you have a
trade deficit
x Very positive with the United States
o Canada exports much more to the U.S. than it imports from
the U.S.
x Negative with other major trading partners
o Canada imports more from other countries than it exports
to those countries
x We trade so much with the US that our overall balance of trade is
o Balance of Payments
Flow of money in and out of the country
Flows of money INTO Canada
x Payments for our exported goods
x Foreign investment in Canada
x Tourist spending in Canada
x Earnings from overseas investments
x Flows of money OUT of Canada
o Payments for imported goods
o Canadian investment in other countries
o Canadian tourist spending outside Canada
o Payments made to foreigners from their investment in
o Foreign aid grants and military spending overseas
x Why do we care?
x Money that flows out of the country has to come from somewhere,
so payments overseas reduce funds available in Canada
x Money that flows in becomes available for other uses in Canada,
improving the Canadian economy
x Canada is in a deficit position, spending more overseas than the
country receives
x This is one key to the exchange rate for the Canadian dollar
o Exchange Rates
The exchange rate marks the cost of purchasing other currencies
The exchange rate therefore partly sets the cost of goods we import
If our dollar goes up, Canadians can buy more in foreign currencies for
each dollar, and foreign goods become cheaper
If our dollar goes down, it costs Canadians more to buy foreign currencies
and foreign goods
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