Chapter 16 Exchange rate Flashcards
Define exchange rate
The value of a country’s currency in terms of the amount of another country’s currency
Define floating exchange rate
An exchange rate regime where the value of a currency is allowed to be determined solely by the demand for, and supply of, the currency on the foreign exchange market
Define appreciation
An increase in the value of a currency against another in a floating exchange system
Define depreciation
A decrease in the value of a currency against another in a floating exchange system
Define fixed exchange rate
Under a fixed exchange rate system, the value of a currency is fixed, or pegged, to the value of another currency, by the central bank of a country at a particular level, and is not permitted to change in responses to changes in currency supply and demand
Define managed exchange rate
An exchange rate that floats in the foreign exchange markets but the central bank (domestic monetary authorities) periodically intervenes to keep the exchange rate within the acceptable values
Define revaluation
An increase in the value of a currency in a fixed exchange rate system
Define devaluation
A decrease in the value of a currency in a fixed exchange rate system
Define balance of payments
A record of the value of all the transactions between the residents of a country with the residents of all other countries over a given period of time
Define reserve assets (official reserves)
Reserves of foreign currencies held by central banks as a result of international trade, which can be bought or sold
Define foreign direct investment (FDI)
A long-term investment by a multinational corporation based in the home country in production activities in the host country, (where the foreign investor owns more than 10% of the host company).
