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Civics > International Money System > Flashcards

International Money System Flashcards

0
Q

How can you determine value of currency?

A

Free market and government decree

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1
Q

What is exchange rate

A

Price in terms of 1 currency at which another can be bought

Ex: 2 pounds=$1

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2
Q

What kind of exchange rates does a free market have

A

Floating exchange rates

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3
Q

How do you FIND the value of currency through a free market

A

The intersection of the supply and demand curves

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4
Q

What kind of exchange rate does a government decreed currency have

A

Fixed exchange rate

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5
Q

Define appreciate

A

Increases in value

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6
Q

Define depreciate

A

Decreases in value

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7
Q

What is a mix of floating and fixed exchange rates?

A

Dirty/managed float

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8
Q

What are types of fixed rates

A

Overvaluation, undervaluation

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9
Q

Define overvaluation

A

Artificially inflating price

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10
Q

How can you predict the future of money value from exchange rates?

A

In the long, medium and short term

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11
Q

What is the long range predictor of money value

A

Purchasing power parity theory

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12
Q

What is purchasing power parity theory

A

If prices are different, the country-with-the-highest-inflation’s currency will depreciate

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13
Q

What is the Big Mac index?

A

Theoretically, a Big Mac should cost the same in every McDonalds, but across the world prices vary.

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14
Q

What is the medium range value determinant

A

Country growth- if the economy is good, money will depreciate

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15
Q

What is the short range money value predictor?

A

Interest rates- if interest rates increase, money will appreciate

16
Q

Why is currency no longer on the gold standard

A

The price of gold couldn’t be controlled, therefore the money system couldn’t be managed

17
Q

Why is overvaluation bad?

A

It requires a government to use up its international reserves, and devalue the money back to its original price

18
Q

What is undervaluation?

A

Artifically lowering the price

19
Q

What happens when you undervalue currency?

A

Jobs are created

No economy force will make it stop

20
Q

What account includes international goods, services and investments?

A

Current account

21
Q

What account includes financial assets?

A

Capital account

22
Q

What is the balance of payments deficit

A

Supply exceeds demand of a country’s currency. Occurs when exchange rate is artifically high (overvalued)

23
Q

What is the balance of payments surplus

A

Demand exceeds supply of a country’s currency. Occur when currency is undervalued

24
Q

What is the bretton woods system?

A

Exchange rates were fixed

25
Q

What is the current exchange rate system?

A

Dirty float

Civics (10 decks)

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