Chapter 10

International Exchange

The chapter describes money as a medium of exchange used by society. This means that money only has a value because we believe in it, if we think about it is just a piece of paper with a number, the face of an important person and a weird smell.
A hard currency has the confidence of international traders, they typically come from economically and politically stable countries like US dollars, pounds, euro and Swiss franc. Soft currency on the other hand, is not acceptable for international exchange.

The law of supply and demand
Demand is the quantity of a good or service that consumers are willing and able to buy depending on the price. And supply is the quantity that producers are willing to offer at a given price. For example is the demand curve shifts to the right and the supply curve stays the same, the units sold will increase and the market price will increase as well. But if we change this and the demand curve stays the same and the supple curve shifts to the right the units sold will still increase but the market price will decrease.

Currency exchange rate
An exchange rate is the ration of how much one currency is worth in terms of another currency. for example $1.00 American dollar is equal to $2,500 Colombian pesos.


International Pricing and Payments

Price is thew amount of money, goods, and services needed to obtain something. It should be given in a rational way, not just charge something because you feel that it should cost that much. There should be a study and statistics behind the given price to make sure that the quantity given is is justified and fair.
The process of setting a price for a global market is based on a number of factors. The price floor is the first one and is the lowest price that a company can charge and still cover costs. The price ceiling on the other hand, is the maximum price that can be charged in a market and it's set by the value costumers see in the product and the Price the competition charges.

Pricing strategies
Penetration pricing is when a company sets a low price compared to competitors. Walmart for example. Skim pricing is known as a temporary strategy where a company sets a high price for a short time. Like the cellphone companies for example, when a new phone is coming out they charge hundreds of dollars for it and after the boom, companies usually they lower the prices. Market pricing is used when competitive products already exist in the marketplace. Prices can be higher or lower than the market average depending on the product's competitive advantage. Prestige pricing is when a company sets a high price throughout the life of a product like Mercedes for example, they want to show they are a luxury car that not everyone can afford.


Balance of Payments

The Elasticity demand describes the relationship between changes in the product's price and the product's demand. The elasticity of demand tells us how much the quantity demanded changes when the price changes. The elasticity of demand measures the responsiveness of quantity demanded to changes in the price charged.
A letter to credit is a financial document used to guarantee a payment, this is a very common method used for international marketing.

Balance of Payments is a record of all transactions made between one particular country and all other countries during a specified period of time. If more currency flows into a country than flows out it is considered to have a positive BOP, if its the other way around it has a negative BOP. There are two major balance of payments components: Current accounts -purchase of goods and tangible products, and financial accounts -financial transactions like loans, stocks, or buying and selling of companies.

A central bank serves as the government's bank and is responsible for a country's monetary policy and an export-import bank are dependent banks established by governments to finance or insure the exporters.