Chapter 29 - Exchange Rates ... Flashcards
What is arbitrage?
The process of buying a good and selling goods across borders to take advantage of international price differences
What happens when a currency is worth less in terms of other countries also called weakening
Depreciation
What is dollarize?
When a country that is not the United States uses the United States dollar as it’s currency
Floating exchange rates
Country lets the value of its currency be determined in exchange rate market
What is an FDI?
Foreign direct investment, purchasing more than 10% of a firm or starting a new enterprise in another country
Foreign exchange market
The market in which people use one Currency to buy another Currency
Hard peg is?
And exchange rate policy in which the central bank says it fixed and unchanging value for the exchange rate
What is a hedge?
Is when you use a financial transaction as protection against risk
International capital flows are
The full financial capital across national boundaries, either as portfolio investment or as direct investment
Merging Currency
Nation chooses to use the Currency have another nation
Portfolio investment
Investments in another country that is purely financial and does not involve any management responsibility
PPP
Purchasing power parity, the exchange rate that equalizes the prices of international trade of goods across countries
What is soft peg?
And exchange policy in which the government usually allows the exchange-rate to be set for the market, but in some cases, especially if the exchange rate seems to be moving rapidly in One Direction the central bank will intervene
What happened when gold was a standard?
Exchange rates were somewhat fixed
What affects exchange rates?
Expectations, relative inflation, relative rates of return in different markets
