1. Quantitatively, how important is international trade to the United States relative
to other nations?
Compared to many other countries, the export percentage of the GDP is relatively small for the United States at only 11%. Alternatively, the United Kingdom is at 27%, China is at 29%, and Germany is at 41% according to 2011 data. To this end, it would appear that international trade is not that important to international trade (Country, 2010). However, looks are deceiving. Although U.S. exports may be a small percentage of the GDP, Americans rely heavily on foreign products making international trade very important to the U.S.
2. Explain how a U.S. automobile importer might finance a shipment of Toyotas
from Japan. Trace the steps as to how a U.S. export of machinery to Italy might be financed. Explain: ¿U.S. exports earn supplies of foreign currencies, which Americans can use to finance imports.¿
An American automobile importer can do a currency exchange through their local bank in order to change dollars to yen. After the money is either transferred to Toyota or the importer has given Toyota a check, Toyota can then deposit the payment into their Japanese bank account and the transaction can be completed.
When U.S. companies sell their products in Italian markets, the receiving company must first do a currency exchange so that the funds are in American dollars. This is accomplished when the organization purchases a lira-dominated check. After the American exporter receives the lira, the exporter sells the lira to an American bank and the American bank deposits the funds for later use.
3. Indicate whether each of the following creates a demand for, or a supply of,
European euros in foreign exchange markets.
a. A U.S. airline firm purchases several Airbus planes assembled in France.
Demand for Euros
b. A German automobile firm decides to build an assembly plant in South Carolina.
Supply of Euros
c. A U.S. college student decides to...