MGT100H1 Chapter Notes - Chapter 4: Dominican Republic, General Agreement On Tariffs And Trade, World Trade Organization
Chapter 4: Competing in World Markets
●Why Nations Trade
○Trading with other countries increases economic growth by:
■Providing a new market for products
■Providing access to needed resources
○International sources of factors of production
■Decisions to operate abroad depend on the availability, price, and quality of
labor, natural resources, capital, and entrepreneurship
●Ex: many companies outsource their information technology and
customer service jobs to Indian companies since India has lots of highly
qualified computer scientists and engineers
■Size of the international marketplace
●When firms in developing nations increase their global business they
also increase their ability to reach new groups of customers
●Measuring trade between nations
○Balance of trade: the difference between a nation’s exports and imports
○Balance of payments: overall money flows into and out of a country
■Balance-of-payments surplus: more money has moved into a country than out of
it
■Balance-of-payments deficit: more money has gone out of the country than
entered it
○Exchange rates
■Exchange rate: value of one country’s currency in terms of the currencies of
other countries
●Floating exchange rates: currency traders create a market for the world’s
currencies based on each country’s trade and the likelihood of
investments
■Devaluation: reduction in a currency’s value in terms of other currencies or in
terms of a fixed standard
■Hard currencies: currencies that easily convert into other currencies
●Ex: Euro, US dollar
●Barriers to international trade:
○Social and cultural differences
■Values and religious attitudes
○Economic differences
■When deciding to trade with a country, managers must consider the country’s
size, its per capita income, and its stage of economic development
■Infrastructure: basic systems of a country’s communication, transportation, and
energy facilities
■Currency conversion and shifts
●A devalued currency may make a nation less desirable as a country to
export to because of reduced demand in that country, but devaluation
can also make the nation desirable as an investment opportunity
○Political and legal differences
■Political climate: political stability, etc.
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Document Summary
Trading with other countries increases economic growth by: Decisions to operate abroad depend on the availability, price, and quality of labor, natural resources, capital, and entrepreneurship. Ex: many companies outsource their information technology and customer service jobs to indian companies since india has lots of highly qualified computer scientists and engineers. When firms in developing nations increase their global business they also increase their ability to reach new groups of customers. Balance of trade: the difference between a nation"s exports and imports. Balance of payments: overall money flows into and out of a country. Balance-of-payments surplus: more money has moved into a country than out of it. Balance-of-payments deficit: more money has gone out of the country than entered it. Exchange rate: value of one country"s currency in terms of the currencies of other countries. Floating exchange rates: currency traders create a market for the world"s currencies based on each country"s trade and the likelihood of investments.
