chp18 Flashcards
what are foreign exchange interventions?
manipulating the exchange rates of currencies through buying and selling them
what results from foreign exchange interventions?
Buying money increases its demand, and increases its exchange rate or price of it in terms of foreign currency
international reserves
amount of foreign currency held by the Federal Reserve or central banking authority
unsterilised foreign exchange intervention
a form of foreign exchange intervention by which the central bank allows the monetary base to be affected by a purchase or sale of its domestic
currency
unsterilised foreign exchange intervention - why does the monetary base fluctuate?
it involves no action by Federal Reserve, so it’s not normalised by open market operations
sterilised foreign exchange intervention
a form of foreign exchange intervention by which the central bank allows the monetary base to be normalized by a purchase or sale of its domestic
currency through open market operations
balance of payments
tracking and accounting for international movements of funds
name the 2 accounts
current and financial
what do current and financial accounts both show?
shows international trasnactions
what’s the difference between current and financial accounts?
current - shows international transactions involving the trade
balance, net investment income, and transfers
financial - shows international transactions involving asset
purchases and sales
trade balance
the difference between imports and exports for a country in a given year
United States exports $800 billion worth of goods and services in a year,
and it imports $900 billion worth of goods and services, then it has a trade balance of…?
$100 billion. This is a $100 billion trade deficit.
fixed exchange rate regime
tying the value of one currency to that of another or is constant
anchor currency
a currency by which other currencies set their value to
floating exchange rate regime
value of a currency can deviate over time, increasing or decreasing in value
managed/”dirty” float
countries manipulate their exchange rates through buying and selling foreign assets
how would the US use managed/”dirty” float to appreciate the dollar?
it will sell its holdings of foreign currency reserves
gold standard
the value of a currency could be fixed or set to the price of gold, making exchange rates of currencies constant or relatively stable over time
gold standard no longer exists in US. what was it displaced by?
fiat money
Bretton Woods System
a short-lived (1945-1971) monetary system by which the U.S. dollar was
readily convertible into gold
International Monetary Fund
year
members
purpose
who do they help
an organization established in 1945
includes 180 members
sets rules for exchange rates
helps countries experiencing financial hardship with loans
world bank
an organization which provides long-term loans to countries for the purpose of capital investment and economic development
world trade organisation (WTO)
an organization which monitors trading relations (involving tariffs and quotas) between countries
Which international monetary institution was created in 1945, has 180 members, set exchange rate rules, and helps countries with loans?
IMF
Which international monetary institution provides long-term loans to countries for the purpose of capital investment and economic development?
world bank
which international monetary institution monitors tariffs and quotas between countries
WTO
Devaluation
the resetting of a currency’s value to a lower level than where it was originally
revaluation
the resetting of a currency’s value to a higher level than where it was originally
speculative attack
intentionally purchasing a strong foreign currency or selling a weak foreign currency
what does a speculative attack cause?
drastic change in a currency’s exchange rate
policy trilemma
the inability to pursue successful policies simultaneously to affect free capital mobility, a fixed change rate, and independent monetary policy
what is the policy trilemma sometimes called?
the impossible trinity
monetary union
the banding together of countries for the purpose of maintaining a unified
currency
example of monetary union
countries that use the Euro
seignorage
issuing new currency by a government and increasing revenue in the process
consequence of a seignorage
increased inflation
