all Flashcards
terms of trade
the ratio between the index of import prices and export prices
marshall lerner condition
the devaluation of a currency will lead to an improvement in its BoT if exports/imports are elastic
structural deficit/surplus
not linked to the economic cycle
causes of structural deficit
competition produces at lower cost
low investment
low productivity
high inflation
low R&D
cyclical deficit/surplus
caused by the state of the economy
cyclical deficit/surplus reasons
high value exchange
boom in domestic demand
recession in export markets
slump in global prices
high demand for imported tech
why countries have a current surplus
export growth
FDI
under valued exchange
high savings
closed economy
strong income overseas
spot exchange rate
the rate of a currency at todays market price
forward exchange rate
delivery of a currency at a specified time in the future
bi-lateral exchange rate
one currency against another
floating exchange advantages
auto stabilisation
stable BoP
more efficient investment
less reserves
freedom of monetary policies
absorbs eco shocks
less imported inflation
floating exchange disadvantages
volatility
lack of control
restricts growth
uncertainty in investment
fixed exchange advantages
reduced inflation
avoid fluctuations
encourage investment
avoid devaluation
fixed exchange disadvantages
less flexible
high interest
hard to keep value
conflict with objectives
capital expenditure
new public infrastructure
