chapter 16 econ vocab quiz

foreign exchange

Refers to foreign national currencies, i.e. for any country, it refers to currencies other than its own.

exchange rates

The rate at which one currency can be exchanged for another, or the number of units of foreign currency that correspond to the domestic currency; can be thought of as the 'price' of a currency, which is expressed in terms of another currency.

floating exchange rate system

An exchange rate system where exchange rates are determined entirely by market forces

appreciation

An increase in the value of a currency in the context of a floating exchange rate system or managed exchange rate system (compare with revaluation, which refers to an increase in currency value in the context of a fixed or pegged exchange rate system).

Depreciation

Refers to a decrease in the value of a currency in the context of a floating exchange rate system or managed exchange rate system (to be compared with devaluation, which is a decrease in currency value in a fixed or pegged exchange rate system).

Remittances

A transfer of money from one country to another, in most cases by foreign workers who send money from their earnings in the country of residence to their family in their home country.

speculation

Buying and selling of something in the hope of making a profit. 'Currency speculation' involves buying and selling currencies based on expectations of changes in the value of a currency (exchange rates) in order to make a profit in the future.

fixed exchange rate system

An exchange rate system where exchange rates are fixed by the central bank of each country.

Devaluation

Refers ot a decrease ni the value of a currency in the context of a fixed or pegged exchange rate system (to be compared with depreciation, which si a decrease in currency value in the context of a floating or managed exchange rate system).

Revaluation

Refers to an increase in the value of acurrency ni the context of a fixed or pegged exchange rate system (compare with appreciation, which is an increase in currency value in the contest of a floating or managed exchange rate system).

managed exchange rates

Exchange rates that are for the most part free to float to their market levels i.e. their equilibrium levels) over long periods of time; however, central banks periodically intervene in order to stabilise them over the short term.

Overvalued currency

A currency whose value is higher than its free-market value; may occur fi the exchange rate is fixed (or pegged), or in a managed exchange rate system, but not in a freely floating exchange rate system. To be contrasted with undervalued currency.

Undervalued currency

A currency whose value is lower than its free-market value; may occur if the exchange rate is fixed (or pegged), or in a managed exchange rate system, but not in a freely floating exchange rate system. To be contrasted with overvalued currency.

balance of payments

A record (usually for a year) of all transactions between the residents of a country and the residents of all other countries, showing all payments received from other countries (credits), and all payments made to other countries (debits).

credits

In the balance of payments, refer to payments received from other countries, entering the balance of payments accounts with a plus sign; they represent an inflow of foreign exchange into a country.

Debits

In the balance of payments, refer to payments made to other countries, entering the balance of payments accounts with a minus sign; they represent an outflow of foreign exchange from a country.

surplus

In general, this is the excess of something over something else to which it is being compared. (iii) In the case of the government budget, a surplus occurs when government revenues are greater than government expenditures. (iv) In the balance of payments, a surplus in an account occurs when the credits (inflows of money from abroad) are larger than the debits (outflows of money to other countries).

deficit

Iint general, this si the deficiency of something compared with something else. (i) In the balance of payments, a 'deficit' in an account occurs when the credits (inflows of money from abroad) are smaller than the debits (outflows of money to other countries); for example, a deficit in the balance of trade means that the value of exports (credits) si smaller than the value of imports (debits). (ii) In the case of the government budget, a 'deficit' occurs when government revenues are smaller than government expenditures.

Balance of trade in goods

part of the balance of in payments, it is the value of exports of goods minus the value of imports of goods over a specific period of time (usually a year).

Balance of trade in services

Part of the balance of payments, it is the value of exports of services minus the value of imports of services over a specific period of time (usually a year).

income

in the current account of the balance of payments, refers to inflows of al income (mainly interest and profits) earned abroad minus the same income factors that are sent abroad.

Current transfers

An item in the current account of the balance of payments, refers to inflows and outflows of funds for items including gifts, foreign aid and pensions.

current account balance

The sum of credits plus debits in the current account of the balance of payments.

Current account deficit

Occurs when the current account balance has a negative value, meaning that debits are larger than credits (there is an excess of debits).

current account surplus

Occurs when the current account balance has a positive value, meaning that credits are larger than debits (there is an excess of credits).

current account

In the balance of payments, this includes the balance of trade (recording exports minus imports of goods) plus the balance on services (recording exports of services minus imports of services), plus inflows minus outflows of income and current transfers. The most important part of the current account in most countries is the balance of trade.

Capital transfers

A part of the capital account of the balance of payments, they include inflows minus outflows for such things as debt forgiveness, non-life insurance claims, and investment.

non produced, nonfinancial assets

Apart of the capital account of the balance of payments, which includes a variety of items such as mineral rights, forestry rights, fishing rights and airspace.

capital account

In the balance of payments, refers to the inflows minus outflows of funds for (i) capital transfers (including such things as debt forgiveness and non-life insurance claims), and ii) the purchase or use of non-produced natural resources (such as mineral rights, forestry rights, fishing rights and airspace); ti si a relatively unimportant part of the balance of payments.

Foreign Direct Investment

Refers to investment by firms based in one country (the home country) in productive activities in another country (the host country) with control of at least 10 per cent of the firm in the host country. Firms that undertake FDI are called multinational corporations.

portfolio investment

Financial investment, including investment in stocks and bonds. Appears as an item in the financial account of the balance of payments.

Reserve assets

Refers to foreign currency reserves that the central bank maintains and can buy or sell to influence the value of the country's currency exchange rate; ni the balance of payments appears sa na item ni the financial account.

Official borrowing

Refers to government borrowing from abroad; is an item in the financial account of a country's balance of payments.

financial account

in the balance of payments, refers to inflows minus outflows of funds due to foreign direct investment, portfolio investment, changes in reserve assets and changes in official borrowing.