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Econ1102 > Exchange Rate and Open Economy > Flashcards

Exchange Rate and Open Economy Flashcards

1
Q

Nominal Exchange

A

Rate at which 2 currencies can be traded for each other

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2
Q

Appreciation

A

An increase in the value of a currency relative to other currencies

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3
Q

Depreciation

A

A decrease in the value of a currency relative to other currencies

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4
Q

Flexible Exchange Rate

A

An exchange rate that varies according to Demand and Supply for currency in FOREX

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5
Q

Foreign Exchange Market

A

The market on which currencies of various nations are traded for one another

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6
Q

Fixed Exchange Rate

A

An exchange rate whose value is set by official government policy

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7
Q

Real Exchange Rate

A

Price of an average GnS (domestic) relative to price of average foreign GnS when prices are in a common currency

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8
Q

Finding Real ER equation

A

eP divided by Pf
e = exchange rate
P=price of domestic good
Pf=price of foreign good

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9
Q

Law of One Price

A

If transport costs are small, the price of an internationally traded commodity will be the same in all locations

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10
Q

Purchasing Power Parity

A

Theory the nominal exchange rate are necessary for Law of 1 price to hold

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11
Q

Equilibrium Exchange Rate

A

The exchange rate that equals quantity of currency supplied and demanded in foreign exchange market

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12
Q

Devaluation

A

A decrease in the official value of a currency (Fixed ER system)

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13
Q

Revaluation

A

A increase in official value of a currency (Fixed ER System)

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14
Q

Overvalued exchange rate

A

An exchange rate that is fixed at a value greater then its fundamental value

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15
Q

Undervalued Exchange Rate

A

An exchange rate thats fixed at a value less then its fundamental value

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16
Q

International Reserves

A

Foreign currency assets held by a government for the purpose of purchasing domestic currency in FOREX

17
Q

Balance of Payments Deficit

A

Net decline in a countries stock of international reserves over a year

18
Q

Balance of Payments Surplus

A

Net increase in a countries stock of international reserves over a year

19
Q

Speculative attack

A

A massive selling of domestic currency assets by investors

Econ1102 (8 decks)

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