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Balance of Trade

The difference between a country's exports and imports

Export-Import

The activity of selling goods to other countries (export) and buying goods from other countries (import)

Trade Surplus

Occurs when a country exports more than it imports (E > I)

Trade Deficit

Occurs when a country imports more than it exports (E < I)

Balance of Payments (BOP)

The difference between a country's exports and imports plus net income (TOtal E - Total I + net income)

BOP Other Equation

The sum of current accounts

Net Income Examples

Foreign investments

Favorable Balance

When more money goes into a country than goes out

Dumping

Selling a product in another country for cheaper than where it is made

Goal of BOP

Achieve equilibrium between exports

Importance of Global Experience

Many companies value employees with international experience

Importing

Buying products from outside the country

Exporting

Selling products to outside the country

Global Trade Types

Importing and exporting

Global Trade

Helps in selling what countries are good at and buying what they need

US

Largest importer

China

Largest exporter

Why Trade with Other Countries?

Not all countries can make every product they need

Free Trade

Shipping products without political barriers

Advantages of Free Trade

Access to a global market of 7.7 billion customers.

Advantages of Free Trade

Increased productivity from focusing on comparative advantages.

Advantages of Free Trade

Keeps prices down

Advantages of Free Trade

Encourages innovation and competitive business practices.

Advantages of Free Trade

Provides access to foreign investments

Solution to Expensive Banks

Providing credit cards to reduce reliance on checks and make banking operations more cost-effective

Electronic Funds Transfer (EFT) System

Sending transaction messages between computers

EFT Types

Debit card

Debit Cards

Function like checks

Payroll Debit Cards

Offer an efficient payment method for firms to pay workers

Smart Cards

Cards combining many tools like credit

Automatic Transactions

Direct Deposit

Direct Deposit

Putting money into someone's account

Direct Payment

Paying using a card or online

Advantages of Online Banks

Higher interest rates and lower fees compared to traditional banks

Disadvantages of Online Banks

Pose security risks as they store sensitive information online

Debit Card Advantages

No interest charged

Debit Card Advantages

Can receive cash from ATMs

Debit Card Advantages

Transactions declined if insufficient funds

Debit Card Advantages

Money directly deducted from checking or savings account

Debit Card Disadvantages

No borrowing ability

Debit Card Disadvantages

If lost

Debit Card Disadvantages

Limited usage for large purchases

Debit Card Disadvantages

No perks like rewards or cashback

Debit Card Disadvantages

Can't build credit history

Credit Card

Involves borrowing money from the credit card company

Credit Card Advantages

Allows borrowing and repayment at a later date

Credit Card Advantages

Useful for emergencies

Credit Card Advantages

Provides extra perks like rewards and cashback

Credit Card Advantages

Offers theft protection

Credit Card Disadvantages

May incur interest if the balance is not paid in full

Credit Card Disadvantages

Potential for late fees if payments are missed

Credit Card Disadvantages

Impacts credit score

Credit Card Disadvantages

Can lead to unnecessary debt accumulation

Types of Financial Institutions

Commercial Banks

Commercial Banks

Profit-driven institutions that collect money from people and businesses and lend it out to others

Types of Bank Customers

Those who deposit money and those who borrow money

Commercial Banks Profit Method

Making more money from loans and investments than they pay out in interest and expenses

Services Provided by Commercial Banks

Demand Deposits

Demand Deposits

Checking accounts where you can easily access your money

Time Deposits

Savings accounts where you need to notify before taking out money

Certificate of Depositors (CD)

Put money into an account until maturity

Factors for Loans

Depend on how reliable and creditworthy customers are

Savings and Loan Associations (S&Ls) Origin

Started in 1831 to encourage buying homes

Savings and Loan Associations (S&Ls) Evolution

Offering high interest to becoming more like banks

Savings and Loan Associations (S&Ls) Failure

Due to inflation

Credit Unions

Nonprofit cooperatives owned by members

Credit Unions Services Provided

Checking accounts

Do Credit Unions Suffer from FED Taxes?

No

Nonbanks

Financial institutions similar to banks but don't take deposits

Nonbanks Examples

Insurance companies

Nonbanks Services

Investments

Pension Funds

Money saved for people who retire

Brokerage Firms

Sell bonds and stock