Studied by 4 people
balance of payments accounts
a summary of a country’s transactions with other countries
balance of payments on the current account (current account)
a country’s balance of payments on goods and services plus net international transfer payments and factor income
balance of payments on goods and services
a country’s difference between the value of its exports and the value of its imports during a given period
merchandise trade balance (trade balance)
the difference between a country’s exports and imports of goods
balance of payments on the financial account (financial account)
a country’s difference between its sales of assets to foreigners and its purchases of assets from foreigners during a given period
foreign exchange market
what currencies are traded in
exchange rates
are the prices at which currencies trade
appreciates
when a currency becomes more valuable in terms of other currencies
depreciates
when a currency becomes less valuable in terms of other currencies
equilibrium exchange rate
the exchange rate at which the quantity of a currency demanded in the foreign exchange market is equal to the quantity supplied
real exchange rates
are exchange rates adjusted for international differences in aggregate price levels
purchasing power parity
between two counties’ currencies is the nominal exchange rate which a given basket of goods and services would cost the same amount in each country
exchange rate regime
a rule governing policy toward the exchange rate
fixed exchange rate
a country has it when the government keeps the exchange rate against some other currency at or near a particular target
floating exchange rate
a country has it when the government lets the exchange rate go wherever the market takes it
exchange market intervention
government purchases or sales of currency in the foreign exchange market constitute
foreign exchange reserves
are stocks of foreign currency that governments maintain to buy their own currency on the foreign exchange market
foreign exchange controls
are licensing system that limit the right of individuals to buy foreign currency
devaluation
a reduction in the value of a currency that is set under a fixed exchange rate regime
revaluation
an increase in the value of a currency that is set under a fixed exchange rate regime
protectionism
the practice of limiting trade to protect domestic industries
tariffs
taxes on imports
import quota
a limit on the quantity of a good that can be imported within a given period
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