Lesson correlates with National Business Education Association National Standards for Business Education, 1995, Reston, Virginia.
· Standard VIII. Import/Export and Balance of Trade... Achievement Standard:  Relate balance of trade concepts to the import/export process.
        C. Balance of Trade, Balance of Payments
· Level 3 - Performance Expectations:  Calculate positive and negative trade balances.
Calculating Trade Balances

 
TIME REQUIRED:
Two  50-minute class  periods
 
RECOMMENDED GRADE:
Grades 11-12


 
MAJOR CONCEPTS:
 Balance of Trade, Balance of  Payments, trade surplus/deficit,         surplus/deficit of balance of payments, exchange rates, floating exchange rates, currency devaluation.
 
INSTRUCTIONAL OBJECTIVES:
 1. Given appropriate statistics, sudents will be able to recognize a     trading deficit/surplus. 

  2. Students will calculate the value of the surplus/deficit.

  3. Students will be able to determine what the effect of a trade     deficit/surplus will be on the balance of payments.

  4. Students will apply currency exchange rates to convert Canadian     Dollars, U.S. Dollars, and Mexican Pesos.
 
 
 
MATERIALS:
     Handout:  NAFTA:  A CANADIAN PERSPECTIVE

       (If possible, the instructor should get the booklet entitled The     Basics of Foreign Trade and Exchange, by Adam Gonnelli, and     published by the Federal Reserve Bank of New York, Public     Information Department, 1993.)
     
RATIONALE:
 : : Balance of Trade demonstrates a relationship between a country’s     imports and its exports.  A trade deficit indicates the country has an    unfavorable balance of trade, or imports more than its exports.  A     trade surplus is a favorable balance of trade, or the value of the     exports are greater than the value of imports.
   
   Balance of Payments describes the flow of money into or out of a     country as a response to the balance of trade, among other things.      Money spent on foreign investments, foreign loans, foreign travel,     foreign aid, maintaining a military in a foreign country, and on     foreign goods creates an outflow of currency; money spent by     foreign countries in the U.S. creates an inflow.  If more money     comes in than goes out, a balance of payments surplus exists.  A     balance of payments deficit means more money leaves the country     than comes into the country.
   
   Exchange rates express the value of one country’s currency in     terms of other currencies.  Currency traders evaluate currencies and    devalue  one currency relative to others on a system call “floating     exchange rates.”  Exchange rates are influenced by supply and     demand, stability of a country’s currency, and the balances of trade     and payments.
 
 
 
PROCEDURE:
  1. Require students to take notes and write down the       definitions given above.   

    2. Hand out the reading “NAFTA:  A CANADIAN       PERSPECTIVE.”
  
    3. Discuss the meaning of the chart on page 1, noting       that some trade values are “millions” and some are       “billions,” and that figures quoted are in Canadian       Dollars.  Have students determine surplus balances       and deficit balances.  The U.S. maintained a trade       deficit with Canada in 1992.  Mexico maintained a       trade surplus with Canada in that year--but, that       trade surplus for Mexico is a deficit for Canada!
  
4 .  Have students calculate the value of each   surplus/deficit, remembering that each country’s trade surplus is a deficit for the trading partner.

5. For extra credit:  Ask students to convert the Canadian Dollars to the currency of each of the other two trading partners, using currency rates in current newspapers.
 
EVALUATION: Students may be evaluated on notes, discussion, and written assignment.  The written assignment may be done in groups or individually
 
AUTHOR:
 Rosemary Piserchio, College of San Mateo, San Bruno, CA..
EDITORS:
Les Dlabay, Lake Forrest College, Wildwood, IL.
Robert Ristau, Eastern Michigan University (ret.), Ypsilanti, MI.

 
 
 
 
 

Click here to download Microsoft Word version of the plan including handouts.