Studied by 7 peopleForeign aid
________ and pensions are included because they can be thought of as the financial flows that accompany the exporting and importing of goods and services.
exchange rate
A(n) ________ determined by market forces can, and often does, change daily.
Credits
________ generate flows of money into the country, debits cause flows of money out of the country.
Instability
________- Flexible exchange rates may destabilize the domestic economy because wide fluctuations stimulate and then depress industries producing exported goods.
Currency interventions
________- Governments manipulate an exchange rate through the use of official reserves.
Uncertainty
________ and diminished trade- The risks and ________ associated with flexible exchange rates may discourage the flow of trade.
downward sloping
The demand for a currency is ________, while the supply of a currency is upward- sloping.
Relative price
________ level changes- Changes in the ________ levels of two nations may change the demand and supply of currencies and alter the exchange rate between the two nations currencies.
Official reserves
________- Consists of foreign currencies, reserves held with the International Monetary Fund, and stocks of gold.
Trade deficit
________- Imports exceed exports.
Terms of trade
________ changes- A decline in the international value of its currency will worsen a nations ________.
Balance of payments
________- The sum of all the financial transactions that take place between its residents and the residents of foreign nations.
Flexible exchange rates
________ automatically adjust and eventually eliminate balance- of- payments deficits or surpluses.
federal government
Exchange controls- The government requires that all currency from another country obtained by US exporters must be sold to the ________.
exchange rate
Changes in tastes- Any change in consumer tastes or preferences for the products of a foreign country may alter the demand for that nations currency and change its ________.
Trade deficits
________ show that there are automatic and unavoidable asset transfers.
International trade
Purchasing or selling currently produced goods or services across an international border
International asset transactions
The transfer of the property rights to either real or financial assets between the citizens of one country and the citizens of another country
Balance of payments
The sum of all the financial transactions that take place between its residents and the residents of foreign nations
Organized into 2 sections
the current account and the capital and financial account
Current account
The section of the balance of payments that summarizes trade in currently produced goods and services
Balance of trade on goods
The difference between its exports and its imports of goods
Balance on goods and services
The difference between a countrys exports of goods and services and their imports of goods and services
Trade deficit
Imports exceed exports
Trade surplus
Exports exceed imports
Balance of current account
The total of all transactions in the current account
Capital and financial account
A countrys international asset transactions
Balance on the capital and financial account
Sum of the deficit on the capital account and the surplus on the financial account
Official reserves
Consists of foreign currencies, reserves held with the International Monetary Fund, and stocks of gold
Balance of payments deficit
A nation must make an in-payment of official reserves to its capital and financial account in order to balance it with the current account
Balance of payments surplus
An out-payment of official reserves from the capital and financial account must occur to balance that account with the current account
Flexible (or floating) exchange rate system
Demand and supply determine exchange rates and in which no government intervention occurs
Fixed exchange rate system
Governments determine exchange rates and make necessary adjustments in their economies to maintain those rates
Changes in tastes
Any change in consumer tastes or preferences for the products of a foreign country may alter the demand for that nations currency and change its exchange rate
Relative income changes
A nations currency is likely to depreciate if its growth of national income is more rapid than that of other countries
Relative price level changes
Changes in the relative price levels of two nations may change the demand and supply of currencies and alter the exchange rate between the two nations currencies
Purchasing power parity theory
Exchange rates equate the purchasing power of various currencies
Relative interest rates
Changes in relative interest rates between two countries may alter their exchange rate
Changes in relative expected returns on stocks, real estate, and production facilities
Investors in one country must sell their currencies to purchase the foreign currencies needed for the foreign investments
Uncertainty and diminished trade
The risks and uncertainties associated with flexible exchange rates may discourage the flow of trade
Terms of trade changes
A decline in the international value of its currency will worsen a nations terms of trade
Instability
Flexible exchange rates may destabilize the domestic economy because wide fluctuations stimulate and then depress industries producing exported goods
Currency interventions
Governments manipulate an exchange rate through the use of official reserves
Exchange controls
The government requires that all currency from another country obtained by US exporters must be sold to the federal government
Managed floating exchange rates
Exchange rates among major currencies are free to float to their equilibrium market levels, but nations occasionally use currency interventions in the foreign exchange market to stabilize or alter market exchange rates
Balance of payments
The sum of all the financial transactions that take place between its residents and the residents of foreign nations
Current account
The section of the balance of payments that summarizes trade in currently produced goods and services
Balance on goods and services
The difference between a country’s exports of goods and services and their imports of goods and services
Trade deficit
Imports exceed exports
Trade surplus
Exports exceed imports
Balance of current account
The total of all transactions in the current account
Capital and financial account
A country’s international asset transactions
Balance on the capital and financial account
Sum of the deficit on the capital account and the surplus on the financial account
Official reserves
Consists of foreign currencies, reserves held with the International Monetary Fund, and stocks of gold
Flexible (or floating) exchange rate system
Demand and supply determine exchange rates and in which no government intervention occurs
Fixed exchange rate system
Governments determine exchange rates and make necessary adjustments in their economies to maintain those rates
Purchasing power parity theory
Exchange rates equate the purchasing power of various currencies
Currency interventions
Governments manipulate an exchange rate through the use of official reserves
Exchange controls
The government requires that all currency from another country obtained by US exporters must be sold to the federal government
Managed floating exchange rates
Exchange rates among major currencies are free to float to their equilibrium market levels, but nations occasionally use currency interventions in the foreign exchange market to stabilize or alter market exchange rates
Note 
Flashcard (111)