Chapter 29 Flashcards
Appreciation
An increase in the price of a currency in a floating rate system
Demand Curve for Foreign Currency
A curve indicating the quantity of a specific foreign currency that Americans will want to buy, during a given period, at each different exchange rate
Deprecation
A decrease in the price of a currency in a floating rate system
Devaluation
A changein the value of a currency from a higher fixed value to a lower fixed value
Exchange Rate
The amount of one country’s currency that is traded for one unit of another country’s currency
Fixed exchange rate
A government-declared exchange rate maintained by central bank intervention in the foreign exchange market
Floating exchange rate
An exchange rate that is freely determined by the forces of supply and demand
Foreign currency Crisis
A loss of faith that a country can prevent a drop in its exchange rate, leading to a rapid depletion of its foreign currency (eg dollar) reserves
Managed Float
A policy of frequent central bank intervention to move the exchange rate
Net Financial Inflow
An inflow of funds equal to a nations trade deficit
Purchasing Power Parity (PPP) Theory
The idea that the exchange rate will adjust in the long run so that the average price of goods in two countries will be roughly the same
Supply Curve for Foreign Currency
A curve indicating the quantity of a specific foreign currency that will be supplied, during a given period, at each different exchange rate
Trade Deficit
The excess of a nation’s imports over its exports during a given period
Trade Surplus
The excess of a nations exports over its imports during a given period
