International Finance 2 Flashcards
1
Q
Freely moving ER
A
ER that freely adjusts to supply and demand change
2
Q
Crawling peg
A
Fixed ER that moves over time
3
Q
Fixed peg
A
Government artificially fixes ER
4
Q
Dollarization
A
Abandoning currency to adopt another
5
Q
Currency union
A
Join another currency with a say in monetary policy
6
Q
4 benefits of single currency
A
- No transaction costs
- Reduces price discrimintation
- Reduce ER volitality
- Reduce inflation
7
Q
2 costs of single currency
A
- Fiscal sovereignty loss
2. Monetary sovereignty loss
8
Q
What is an optimal currency area?
A
A geograpghical area suited to having a single currency
9
Q
3 things that make up an optimal currency area
A
- Real wage flexibility
- Labour mobility
- Finnacial capital mobility
10
Q
Role of bussiness cycles in currency union
A
The more convergent individual nations BC’s are the more likley the joint monetary policy is going to function
