CH.9 - STAGE OF MODERN GLOBALIZATION (AROUND THE WORLD IN 80 DAYS)

Question 1

arbitrage opportunities

Answer 1

Situations in which an individual can purchase in one market an asset that she believes is systematically overvalued or undervalued and then move it to another market, sell it for a gain, or use it to purchase another asset

Question 2

banker’s acceptances

Answer 2

Financial instruments that a party to an exchange can obtain from her bank to lower the risk of nonpayment of an obligation across national boundaries; see letters of credit

Question 3

bilateral trade negations

Answer 3

A nation-to-nation reciprocal trade agreement that is under­taken by two sides equally and is binding on both parties

Question 4

convertibility

Answer 4

A government’s practice of exchanging its currency for another currency or reserve asset at the established rate of exchange upon request

Question 5

countercyclical policy

Answer 5

Economic policies that work to oppose and counteract the cur­rent global economic trend through the provision of collective goods such as liquidity and low levels of tariffs; see procyclical policies

Question 6

creative destruction

Answer 6

The disciplinary mechanism of competitive markets that forces transformation upon uncompetitive producers, generates waves of structural change, and creates economic advance in society

Question 7

currency risk

Answer 7

Uncertainty about exchange rates due to the fluctuations of currencies vis-à-vis each other

Question 8

default risk

Answer 8

The threat that a borrower or a buyer may renege on payment, either partially or wholly

Question 9

deflation

Answer 9

A persistent decrease in the level of consumer prices for commodities and services, or a persistent increase in the purchasing power of money because of a reduction in available currency and credit relative to the supply of commodities and services

Question 10

free trade

Answer 10

Blocs of states that agree to eliminate tariffs or barriers to trade between member states; GATT (and now the WTO) provide exceptions for such exclusionary principles if they conform to certain requirements, such as not raisings tariffs for nonmembers

Question 11

gold standard

Answer 11

A monetary regime in which governments set their currency values relative to gold

Question 12

Gresham’s Law

Answer 12

An economic precept that specifically states that bad money drives out good money, but generalizes to any market or exchange wherein people encounter difficulties distinguishing between good and bad versions of a commodity

Question 13

imperialism

Answer 13

Intrusive political and economic domination in overseas colonial possessions; imperial powers employ the political-military tools of hierarchy, not markets, to manage their colonial possessions and change production structures in their colonies

Question 14

inflation

Answer 14

A persistent increase in the level of consumer prices for commodities and services or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services

Question 15

international monetary regime

Answer 15

A set of formal and informal rules, conventions, and norms that govern international financial transactions—the monetary and financial rela­tions between states; it specifies what policy instruments governments may use, what those instruments can legitimately target as policy, and when they can be used

Question 16

lender of last resort

Answer 16

p.345

Question 17

letters of credit

Answer 17

Financial instruments that a party to an exchange can obtain from her bank to lower the risk and uncertainty of nonpayment of an obligation across national boundaries; see banker’s acceptances

Question 18

market access under duress

Answer 18

A countercyclical policy of maintaining relatively open markets for international goods at a time of economic crisis and providing an outlet for foreign economic enterprises to sell their goods in order to counter recessionary trends

Question 19

mercantilism

Answer 19

A system of political economy prevailing in Europe after the decline of feudalism, based upon the principle that the international flow of capital is good if one’s own nation attains a favorable balance of trade when compared to other nations, thereby contributing to the political-military might and position of the nation and its sovereign

Question 20

most-favored-nation (MFN status)

Answer 20

An international trade mechanism that automatically extends to this nation any trade concession such as a lower tariff barrier that one might grant to another nation

Question 21

network externality

Answer 21

A dynamic whereby the previous choices made by policymakers in the system spill over to push convergence of future choices elsewhere in the system; an artifact and a contributor of increasing interdependence

Question 22

principle of nonexclusion

Answer 22

p.319

Question 23

procyclical policy

Answer 23

A nation’s monetary and fiscal efforts to maintain the current economic trend; see countercyclical policies

Question 24

protectionism

Answer 24

p.321

Question 25

tradable sector

Answer 25

That portion of an economy where domestic producers of goods and services compete with overseas producers, whether in overseas markets or at home