CHAPTER 15 – INTERNATIONAL TRADE

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TRADE

Trading is the Buying (importing) & Selling (exporting) of different products between countries.

An Open Economy is an economy that engages in international trade.

TRADE Domestic Trade is the buying and selling of goods

& services in our own country.

Foreign trade (or international trade) means selling goods and services to, and buying goods and services from, other counties.

INTERNATIONAL TRADE

Some countries have a natural advantage over other countries in the production of one or more good or services.

Can you think of examples of these countries?

Countries tend to concentrate on the production of the goods & services in which they have an advantage & import the other goods they need.

INTERNATIONAL TRADE International trade is subdivided into visible and

invisible trade.

Visible trade deals with physical products that can be seen going out of, or coming into the country.

Invisible trade deals with services. No physical product can be seen going out of, or coming out of the country as a result of the sale or purchase of services.

WHO ARE OUR MAIN TRADING PARTNERS?

WHO ARE OUR MAIN TRADING PARTNERS?

COUNTRY CURRENCY LANGUAGE

USA Dollar English

Britain Sterling English

Europe Euro + others

Various

Japan(importing)

Japanese Yen Japanese

TRADING GAME

You are a country and on your card you have a certain amount of commodities such as Energy, Manufactured Goods, Food & Nuclear Waste.

On your card is what you need to achieve – the amount of commodities stated on your Country Card.

You have to trade with each other in order to achieve your needs.

There is no stated exchange rate – you decide on what you will buy and sell commodities for.

IMPORTS

An import is any good or service purchased by the residents of a country that causes money to go out of the country.

Importing: buying goods & services from other countries.

Foreign goods and services that we buy in Ireland.

Money leaves Ireland.

VISIBLE IMPORTS Goods which are bought from other

countries. Money leaves the country. Examples include: Citrus fruit Wine Cars

INVISIBLE IMPORTS Services that are bought from other countries. Money leaves the country. Examples include: Irish person on holiday in USA JLS playing in concert in Dublin French horse winning Irish Grand National

EXPORTS An export is a good or service provided by the

residents of a country that causes money to come into the country when sold.

Exporting: selling goods & services to other countries.

Irish goods and services that we sell to foreign countries.

Money comes into the country.

VISIBLE EXPORTS Irish goods that are sold to foreign countries. Money comes into the country. Examples include: Irish beef sold abroad. Guinness sold to France Waterford Crystal sold to USA.

INVISIBLE EXPORTS

Irish services that are sold to foreign countries. Money comes into the country. Examples include: Bressie playing a concert in Wembley in London. US citizen on holiday on Ireland. Irish horse winning the English Grand National.

HOMEWORK 22.02.13

Find an example of an import (visible/invisible) and an export (visible/invisible) over the weekend and take a photo of it using a camera phone.

Share the file using Google drive so we can make a class video explaining what imports and exports are.

HOMEWORK 22.02.13

For example, Irish farmer selling eggs in Tesco in England – visible export.

HOMEWORK 22.02.13

For example, Irish person travelling to England for a gig – invisible import.

CLASSWORKItem Visible

ExportInvisible Export

Visible Import

Invisible Import

Justin Bieber playing at a concert in the O2 in Dublin

       

An Austrian restaurant buys Irish beef

  

     

Irish football supporters travelling to Poland for the Euros

       

An Irish restaurant buys lemons from Spain

  

     

Tourists from Italy visit Kerry on their holidays

       

Irish golfer Rory McIlroy wins the US Open

  

     

An Irish family go to Greece on their holidays

  

     

A Welsh rugby team travel on Irish Ferries for a match in the Aviva

       

A fancy bar in New York buys Waterford Crystal glasses

       

An Irish businessman purchases a BMW car

  

     

CLASSWORK

INTERNATIONAL TRADEMonday, 25th February 2013

WORKBOOK QUESTION 1 PAGE 87

WORKBOOK QUESTION 2 PAGE 87

WORKBOOK QUESTION 3 PAGE 87

HOMEWORK CORRECTIONS

Get a new Business Studies copybook!

Your book was printed in 2010 but our economic situation is constantly changing. Your book outlines the advantages of economic growth but not the consequences of negative economic growth (recession).

State & explain, expand & give an example.

Don’t forget to state whether your budget is a surplus/deficit.

28 mins per question!

2012 EXAM PAPERS QUESTION 3

2008 EXAM PAPERS QUESTION 3

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VISIBLE EXPORTS AND VISIBLE IMPORTS Visible exports are

physical products produced by the residents of a country that cause money to come into the country when sold. Examples of Ireland’s visible exports are:

Visible imports are physical goods purchased by the residents of a country that cause money to go out of the country. Examples of Ireland’s visible imports are:

29

INVISIBLE EXPORTS AND INVISIBLE IMPORTS

Invisible exports are services provided by the residents of a country that cause money to come into the country. Examples: incoming tourists and the sale of financial services abroad.

Invisible imports are services purchased by the residents of a country that cause money to go out of the country. Examples: outgoing tourists and “foreign” pop groups playing in Ireland.

THE BALANCE OF TRADE The Balance of Trade is the difference

between the value of visible exports and visible imports.

Ireland’s Balance of Trade figures (1990 – 2011)

THE BALANCE OF TRADE If the value of visible exports is greater than

the value of visible imports Positive figure Surplus Favourable Balance of Trade

Balance of TradeTotal value of visible exports

€20,000 million

Total value of visible imports

€15,000 million

Balance of Trade €5,000 million

THE BALANCE OF TRADE If the value of visible exports is less than the

value of visible imports Negative figure Deficit Unfavourable Balance of Trade

Balance of TradeTotal value of visible exports

€20,000 million

Total value of visible imports

€28,000 million

Balance of Trade (€8,000 million)

THE BALANCE OF TRADE

Balance of TradeTotal value of visible exports

€30,000 million

Total value of visible imports

€30,000 million

Balance of Trade 0

If the value of visible exports equals the value of visible imports Balanced Balance of Trade

WORKBOOK QUESTION 4 PAGE 88

WORKBOOK QUESTION 5 PAGE 88

BALANCE OF INVISIBLE TRADE

The Balance of Invisible Trade = Invisible Exports – Invisible Imports

WORKBOOK QUESTION 6 PAGE 88

WORKBOOK QUESTION 7 PAGE 88

BALANCE OF PAYMENTS

The Balance of Payments is the difference between the value of all goods and services that Ireland exports and imports.

The BOP shows both visible and invisible trade.

Balance of Payments = Total Exports – Total Imports

BALANCE OF PAYMENTS CAN BE…….

Surplus: Exports ________________ Imports

Deficit: Imports ________________ Exports

Balanced: Exports ______________ Imports

CALCULATING BALANCE OF PAYMENTS – TEXTBOOK QUESTION 14, PAGE 153

Balance of Payments

Total Exports (€500 + €400) €900m

Less Total Imports (€450 + €500)

(€950m)

BOP Deficit (€50m)

TEXTBOOK QUESTION 15, PAGE 153

Balance of TradeVisible exports €800 millionLess Visible imports (€650 million)BOT Surplus €150 million

Balance of PaymentsTotal Exports €1,350 millionLess Total Imports (€1,320 million)BOP Surplus €30 million

2NK BUSINESS STUDIESFriday, 1st March 2013

GROUP WORK EXERCISE

As a group, you need to decide whether the items on your Country card are visible imports or exports?

When you have decided what category the item belongs to – you need to calculate the country’s Balance of Trade, Balance of Invisible Trade and the Balance of Payments.

GROUP WORK ANSWERS

Country Balance of Trade

Balance of Invisible Trade

Balance of Payments

Ireland

Spain

Germany

Netherlands

France

Italy

OVERCOMING A BALANCE OF TRADE

DEFICITIncrease exportsReduce importsBuy Irish (import substitution)Source raw materials at homeOnly use Irish services

IMPORT SUBSTITUTION

What is Import Substitution?

WHAT IS IMPORT SUBSTITUTION?

Import Substitution is the replacing of imported goods with domestically produced goods on the home market.

Buying Irish goods instead of foreign goods. Eg. buying Irish potatoes instead of Spanish

potatoes.

BENEFITS OF A BALANCE OF PAYMENTS SURPLUS

More money coming into the country. This money can be used to pay off some of our

debt or reduce tax. More money and jobs and a better standard of

living for Irish people.

WHAT PROBLEMS WILL A BALANCE OF PAYMENTS DEFICIT CAUSE?

Too much money leaving the country. Government will have to raise taxes and/or

borrow. Irish people will lose their jobs.

HOW CAN A BALANCE OF PAYMENTS DEFICIT BE REDUCED?

Import substitution: Buy Irish!

Government Agencies such as Failte Ireland and An Bord Bia can promote/market Irish exports.

TURN TO YOUR NEIGHBOUR

Why does Ireland export goods & services? Write down your own list of reasons in your

worksheet. Turn to your neighbour and compare your list

of reasons.

Why does Ireland import goods & services? Write down your own list of reasons in your

worksheet. Turn to your neighbour and compare your list

of reasons.

WHY DO WE EXPORT? To earn money and obtain foreign currency

needed to buy our imports. Ireland is a small country so we need a wider

market such as EU, USA etc. Ireland exports in order to create employment -

more exports means more jobs are created. Ireland exports in order to sell off our surplus

production. Selling the surplus goods abroad earns extra income for these countries.

WHY DO WE IMPORT?

To obtain raw materials, capital goods & consumer goods that are not available in Ireland.

For example, olive oil, televisions and coffee To avail of services not in Ireland.

For example, concerts, foreign holidays……… To have variety and choice of goods & services.

NOTES

Balance of Trade = Visible Exports – Visible Imports

Balance of Invisible Trade = Invisible Exports – Invisible Imports

Balance of Payments = Total Exports – Total Imports

THE EU

What is the EU? The European Union is an economic & political

partnership between 27 democratic European countries.

What is the Eurozone? The Eurozone is a collection of 17 countries that

used a common currency, the Euro.

When was the Euro € introduced? 2002

HOMEWORK 25.02.13

You were given an EU member country to research for today’s class.

As part of your research, you had to find out 10 interesting facts about the country including what language they speak and what currency they use.

Everyone needs to state their country, currency & language and your top 3 interesting facts about the country.

You should complete the worksheet while you listen to your classmates.

HOMEWORK 01.03.13

Read over pages 144 – 150 of “Ready for Business” Textbook.

We will have a test on Chapter 15 next Friday.

INTERNATIONAL TRADE

HOMEWORK 04.03.13

Revise Chapter 15 & study for a class test.

We will have a test on Chapter 15 next Friday in a computer room.

IMPORT SUBSTITUTION

Did you think about any goods or services you purchased over the weekend?

If they were imports – could you have substituted them with Irish goods?

Is Import substitution difficult or easy?

PROBLEMS CONNECTED WITH FOREIGN TRADE. Language differences makes communications more

difficult. Transport: all Irish exports must bear the additional

cost of sea or air transport, as well as the normal road or rail transport.

Insurance costs are high due to the additional handling of goods arising from extra transport methods required.

Different countries set different minimum standards of production and different specifications for products.

Currencies change in value on a day to day basis adding greater risk for importers.

MIDTERM BREAK TRIP

RULES FOR CONVERTING CURRENCY

Converting Euro to foreign currency:

Multiply by the sell rate.

Converting foreign currency to Euro:

Divide by the buy rate.

CURRENCY CONVERSION

I have €100 and I want to convert this to Dollars.

€100 x $1.33 = $133

I have £500 and I want to convert this to Euros.

£500 ÷ €1.17 = €427.30

Bank Sell Rate€1 = £0.85€1 = $1.33

Bank Buy Rate$1 = €0.74£1 = €1.17

WORKBOOK Q 12, PAGE 90

WORKBOOK Q 13, PAGE 90

PAIR WORK

You are a bank official. You must calculate how much foreign currency the customer will receive.

Remember to Multiply by the sell rate.

You are going on your holidays to:

2011 EXAM PAPERS - QUESTION 3 PAPER 1

2011 EXAM PAPERS - QUESTION 3 PAPER 1

2011 EXAM PAPERS - QUESTION 3 PAPER 1

2011 EXAM PAPERS - QUESTION 3 PAPER 1

2011 EXAM PAPERS - QUESTION 3 PAPER 1

2011 EXAM PAPERS - QUESTION 3 PAPER 1

2011 EXAM PAPERS - QUESTION 3 PAPER 1

2010 EXAM PAPERS – QUESTION 3 PAPER 1

2010 EXAM PAPERS – QUESTION 3 PAPER 1

EXAM QUESTION 2006 P1 Q 3.

Balance of Trade Visible Exports €540m Less Visible Imports €400m Surplus €140m

CONTINUED..

Balance of Invisible Trade Invisible Exports €620m Less Invisible Imports €260m Surplus €360m

CONTINUED…

Balance of Payments Total Exports (540+620) €1160 Less Total Imports (400+260) € 660 Surplus €500