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UNT PSCI 3810 - Chapter 9 Vocabulary

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Chapter 9 Vocabulary: Global Finance & Business1. Gold standard: a system in international2. Exchange rate: the rate at which one state’s currency can be exchanged for the currency of another state; since 1973, the international monetary system has depended mainly on floating rather than fixed charges3. Convertible currency: the guarantee that the holder of a particular currency can exchange it for another currency; some states’ currencies are nonconvertible4. Hyperinflation: an extremely rapid, uncontrolled rise in prices, such as occurred in Germany in the 1920s & some third world countries more recently5. Hard currency: money that can be readily converted to leading world currencies6. Reserves: hard-currency stockpiles kept by states7. Fixed exchange rates: the official rates of exchange for currencies set by governments; not a dominant mechanism in the international monetary system since 19738. Floating exchange rates: the rates determined by global currency markets in which private investors & governments alike buy & sell currencies9. Managed float: a system of occasional multination government interventions in currency markets to manage otherwise free-floating currency rates10. Devaluation: a unilateral move to reduce the value of a currency by changing a fixed or official exchange rate11. Central bank: an institution common in industrialized countries whose major tasks are to maintain the value of the state’s currency & to control inflation12. Discount rate: the interest rate charged by governments when they lend money to private banks;the discount rate is set by countries’ central banks13. Bretton Woods system: a post-WWII arrangement for managing the world economy, established at a meeting in Bretton Woods, New Hampshire, in 1944; its main institutional components are the World Bank & the International Monetary Fund (IMF)14. World Bank: formally the International Bank for Reconstruction & Development (IBRD), an organization that was established in 1944 as a source of loans to help reconstruct the European economies; later, the main borrowers were third world countries &, in the 1990s, Eastern European ones15. International Monetary Fund (IMF): an IGO that coordinates international currency exchange, the balance of international payments, & national accounts; along with the World Bank, it is a pillar of the international financial system16. Special Drawing Right (SDR): a world currency created by the IMF to replace gold as a world standard; valued by a “basket” of national currencies, the SDR has been called “paper gold”17. Balance of payments: a summary of all the flows of money into & out of a country; includes three types of international transactions: the current account (including the merchandise trade balance), flows of capital, & changes in reserves18. Keynesian economics: the principles articulated by British economist John Maynard Keynes, usedsuccessfully in the Great Depression of the 1930s, including the view that governments should sometimes use deficit spending to stimulate economic growth19. Fiscal policy: a government’s decisions about spending & taxation, & one of the two major tools of macroeconomic policy making (the other being monetary policy)20. Monetary policy: a government’s decisions about printing & circulating money, & one of the two major tools of macroeconomic policy making (the other being fiscal policy)21. National debt: the amount a government owes in debt as a result of deficit spending22. Multinational corporations (MNCs): a company based in one state with affiliated branches or subsidiaries operating in other states23. Foreign direct investment: the acquisition by residents of one country of control over a new or existing business in another country24. Host country: a state in which a foreign multinational corporation (MNC) operates25. Home country: the state where a multinational corporation (MNC) has its


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