Chapter 6

Question 1

The exchange of products, services, and capital between countries

Answer 1

International trade

Question 2

Products and services that are produced outside countries borders and then brought into the country

Answer 2

Imports

Question 3

Products and services are produced within a country’s borders and then transported to another country

Answer 3

Exports

Question 4

Rather than producing everything themselves, countries often specialize in products and services for which they have a ________, that is, products and services that they can produce relatively more efficiently than other countries.

Answer 4

Comparative advantage

Question 5

When a country is more efficient at producing a product or a service than other countries — that is, it needs less resources to produce the product or service.

Answer 5

Absolute advantage

Question 6

Tracks transactions between a country and the rest of the world over a period of time, usually a year

Answer 6

Balance of payments

Question 7

If the value of exports is higher than the value of imports - that is, if net exports are positive - the country has a …

Answer 7

Trade surplus

Question 8

If the value of exports is lower than the value of imports - that is, if net exports are negative - the country has a …

Answer 8

Trade deficit

Question 9

Primarily reports capital transfers between domestic entities and foreign entities, such as debt forgiveness or the transfer of assets by migrants entering or leaving the country.

Answer 9

Capital account

Question 10

Reflects the investments domestic entities make in foreign entities and investments foreign entities make in domestic entities

Answer 10

Financial account

Question 11

The rate at which one currency can be exchanged for another. It is expressed as the number of units of one currency it takes to convert into the other currency.

Answer 11

Foreign exchange rate

Question 12

A currency that is held in significant quantities by many governments and financial institutions as part of their foreign exchange reserves

Answer 12

Reserve currency

Question 13

An economic theory based on the principle that a basket of goods in two different countries should cost the same after taking into account the exchange rate between the two countries currencies

Answer 13

Purchasing power parity

Question 14

An opportunity to take advantage of the price difference between two markets

Answer 14

Arbitrage opportunity

Question 15

The exchange rate at which the bank or currency dealer will buy the foreign currency

Answer 15

Bid exchange rate

Question 16

The exchange rate at which the bank or dealer will sell the foreign currency

Answer 16

Offer exchange rate (ask exchange rate)

Question 17

Where currencies are traded now and delivered immediately.

Answer 17

Spot market

Question 18

Where currencies are traded now but delivered at some future date, such as one month or three months from now.

Answer 18

Forward market