CH.12 - WORLD POST-BRETTON WOODS (GLOBALIZATION ADVANCES)

Question 1

capital markets

Answer 1

p.483

Question 2

capital mobility hypothesis

Answer 2

A conjecture that posits an inverse relationship between the mobility of capital and the policy autonomy of government or less mobile assets of production

Question 3

contagion network

Answer 3

A web of transactions and connections that transmits opportunities, dislocations, and risks across societies

Question 4

currency control board

Answer 4

An extremely narrow version of a peg, which tightens the trading band of a currency and limits a government’s latitude for responding to political pressures to manipulate money supply and the exchange rate

Question 5

disintermediation

Answer 5

A process in which economic enterprises shift their borrowing away from commercial banks, which guarantee a specific rate of return to savers and intermediate their risks, and toward securitized financial instruments such as bonds and equities, in which the investor accepts the full risk of the loan to a borrower but also can reap a greater reward

Question 6

European Monetary System (EMS)

Answer 6

A collective peg monetary arrangement formed in 1979 that targeted ±2.25 percent bands for members of the peg, but allowed some weaker-currency states (such as Italy) a wider, transitional band of 6 percent

Question 7

European Snake

Answer 7

A collective-currency peg that constrained the trading range of European currencies; it was created in response to fears about post–Bretton Woods flotation and designed to limit exchange-rate volatility

Question 8

exchange-rate mechanism (ERM)

Answer 8

The mechanism that determines the value of one currency versus another and provides a means of adjustment in the balance-of-payments mechanism

Question 9

financial futures markets

Answer 9

Markets in which traders purchase financial instruments in a particular currency and lock in the price of that currency at some future date; such betting on the future value of currencies allows hedging against exchange-rate risk and supplies insurance mechanisms to manage currency risk

Question 10

Fleming-Mundell Model

Answer 10

A theory that predicts an inherent tension between currency stability, capital mobility, and monetary policy autonomy

Question 11

foreign direct investment (FDI)

Answer 11

Investment in control of productive facilities overseas—usually defined by an investment that amounts to control of 10 percent or more of a company’s equity

Question 12

global capital

Answer 12

Capital that can move from one nation to another

Question 13

hard currency

Answer 13

Any monetary unit that can readily be used and accepted in international transactions; such currencies are desirable because they are considered likely to hold their value over time and so present relatively little currency risk to the parties of an international transaction

Question 14

letter of conditionality

Answer 14

A letter, signed by a government, that offers commitments to address systemic problems in its domestic economy in exchange for financial assistance from an international organization such as the IMF

Question 15

Maastricht Criteria

Answer 15

A set of macroeconomic convergence goals, established by the Maastricht Treaty (1991), which European governments had to meet by 1997, as they moved to Stage III of European Monetary Union

Question 16

money markets

Answer 16

Markets that involve the trading of financial instruments that have a maturity of less than one year; these short-term obligations include trading in currencies, currency futures, and options

Question 17

neoliberalism

Answer 17

A shift away from Keynesian strategies such as fiscal policies, domestic social protections, controls on capital movements, and collective international manage­ment, to place greater emphasis on markets to condition, reward, or penalize economic activity

Question 18

petrodollars

Answer 18

The revenues that accrue to oil-producing states from the sale of oil; much of this revenue is recycled into the global economy either through increased consumption or through bank deposits in Western banks located in the large financial centers, which then loan those to borrowers

Question 19

securitization

Answer 19

The transformation and packaging of financial liabilities into financial instruments such as bonds and stocks that can be sold in financial markets

Question 20

seignorage

Answer 20

An overexpansion of money supply by issuing more currency so that a government can pay its bills and finance its programs, which creates an inflation tax

Question 21

systemic factors

Answer 21

Forces that reside outside the domain of any specific national arena and operate across all national arenas

Question 22

unholy trinity

Answer 22

A framework that describes the relationship between exchange-rate policy, monetary policy, and capital mobility; governments can obtain two of the three compo­nents of the trinity, but not all three at the same time

Question 23

Washington Consensus

Answer 23

A policy agenda that places great emphasis upon the corrective pressures of market discipline and seeks to reduce government regulation and intervention in the economy by promoting economic openness in trade and capital movements, liberalization of financial markets, fiscal policies that lead to balanced budgets, anti-inflationary monetary policies, stability in exchange-rate relations, expansion of private enterprise, and a reduction in state-owned enterprises