Download Law for Business

Business Administration &
Management
Mr. Bernstein
Theories on International Trade and
Investment, pp 98-101
February 2017
Business Administration &
Management
Mr. Bernstein
Currencies, or FX
Consumer goods are sold in the currency of the
consumer: Samsung Galaxy is sold in USD
But the producer counts profits in the currency of its
host nation
What does Samsung do with the USD it collects from
customer sales?
What is the exchange rate?
If Samsung sells more phones in the US, will the KRW
rise or fall?
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Business Administration &
Management
Mr. Bernstein
Theories on International Trade
Comparative Advantage Theory: Nations
should specialize
Product Life Cycle Theory: As innovative
products mature, producers look harder at
overseas sales
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Business Administration &
Management
Mr. Bernstein
Balance of Trade
Current Account = value of exports minus value of
imports
Capital Account = investment funds flowing into or out
of a nation
The US runs large trade deficit (current account) with
China
The US runs large capital account surplus – the Chinese
invest capital into US businesses and government
bonds
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Business Administration &
Management
Mr. Bernstein
Balance of Trade
How does a current account deficit affect
currency exchange rates?
How does currency exchange rates affect
returns on capital investments?
How do currency exchange rates affect
inflation?
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