Return to Set

ECON 4040: Final Exam

Reason for holding foreign currency
1. trade and investment 2. interest rate arbitrage 3.speculation
Flip
interest rate arbitrage
borrow where rates are low, loan where rates are high
Flip
speculation
predicting exchange rate movements
Flip
spot
buying and selling in the present
Flip
exchange rate risk
expected future payments in a foreign currency will differ from the current amount if the exchange rate changes
Flip
forward contracts
specify a future transaction date and will take the exchange rate of when the contract was set
Flip
law of one price (individual commodity)
identical goods sold in different countries must sell for the same price when price is expressed in terms of the same currency. This occurs in competitive markets free of transportation and barriers of trade.
Flip
purchasing power parity
an exchange rate is at the level where a given amount of money can by the same quantity of goods abroad as it will buy at home
Flip
business cycle
natural but irregular rhythms of expansion and recession that every country undergoes
Flip
real exchange rate
the market (or nominal) rate adjusted for price differences
Flip
devalue
more units must be exchanged for 1 unit of foreign currency
Flip
revalue
domestic currency is more valuable and fewer units exchanged for 1 unit of foreign currency
Flip
capital flight
a large and sudden movement of funds out of a country into another one
Flip
expenditure switching
changing trade balance between X and M
Flip
expenditure reducing
reducing M
Flip
statistical discrepancy
the amount by which current+capital+financial accounts don't = 0
Flip
balance of payments
current, capital and financial account=0
Flip
sudden stop
a large outflow of financial capital and stopping of flow of financing
Flip
Gross Domestic Product
The market value of all final goods and services produced within a country during a given time period
Flip
Gross National Product
The market value of all final goods and services produced anywhere by a country's resources in a given time period
Flip
private savings
the part of disposable income that is saved rather than consumed
Flip
government savings
tax revenue minus government expenditures
Flip
international debt
money owed to nonresidents that must be paid in foreign currency
Flip
debt service
principal and interest repayment
Flip
ideally
foreign loans will be used to increase skills, productivity and capacity will be easily repaid
Flip
( 1 of 25 )

View

  • Term
  • Definition
  • Both Sides

Study

  • All (25)

Shortcut Show

Next

Prev

Flip