Financial interdependence of Nations

Exchange Rate

The rate at which one currency can be sold for another

Base Currency

Currency on the left

Quote or Counter Currency

Currency on the right

FOREX

A decentralized, global market that is open 24 hours a day 5 days a week

Spot

Trade at current exchange rate

Forward

Trade at agreed upon exchange rate

Option

Right to trade at an agreed-upon exchange rate

Advantages of a Strong Dollar

Boosts global perception of economy, Boosts consumer confidence, Makes imports cheaper, Makes foreign travel less expensive

Disadvantages of a Strong Dollar

Decreases competitiveness of domestic business' exports, Negatively affects balance of trade, Makes foreign travel more expensive, Devalues business profits made in foreign countries

Advantage of a Weak Dollar

Attracts foreign visitors, Boosts tourism, Makes domestic businesses more competitive in foreign markets, Reduces price pressure from imports

Disadvantages of a Weak Dollar

Lowers international opinion of economy, Can raise cost of living for domestic consumers, Raises costs for domestic businesses that import goods/labor, Makes foreign business expansion difficult

Global Unrest

A political influence on currency value

Domestic

Producers and buyers are in the same country

Global

Product is produced in one country and consumed in another

Import

Product bought from producers in other countries

Export

Product that businesses sell to other countries

Absolute Advantage

A nation can produce a good or service at a lower cost than another country

Comparative Advantage

A nation specializes in and produces the goods and services at which it is most efficient relative to another country

Outsourcing

Hiring a third party to perform tasks, handle operations, and/or provide services for the company

Lower Prices of Goods Due to Increased Competition

A possible benefit of trade

Increases Supply Overall

Outsourcing

Tariff

Tax on imported goods

Quota

Limits the volume of imports or exports that move into or out of a country

Subsidies

Government pays a domestic producer, expecting nothing in return, so that consumers can pay a lower price

Licenses

Import permits to help nations keep track of and regulate the level of imports by individual businesses

Product Standards

Criteria for determining a product's ability to meet specified guidelines or requirements

Factors That Affect Global Trade

Technology, Government Control, Government Support, Competition