Chapter 6: Government Influence on Exchange Rates

Flashcards covering key concepts related to government influence on exchange rates as detailed in the lecture.

Exchange Rate System

The framework used by governments to determine the value of their currency against other currencies.

Fixed Exchange Rate System

A system where exchange rates are held constant or allowed to fluctuate within very narrow boundaries, requiring central bank intervention.

Freely Floating Exchange Rate System

Exchange rates determined by market forces without government intervention.

Managed Float Exchange Rate System

A system where currency value floats normally, but the government intervenes periodically to meet specific objectives.

Pegged Exchange Rate System

A system where a currency's value is pegged to a foreign currency or a basket of currencies.

Direct Intervention

The act of a central bank engaging in foreign exchange transactions to influence the demand or supply of its currency.

Indirect Intervention

A method by which a central bank affects the currency’s value by influencing economic factors that determine it.

Dollarization

The replacement of a foreign currency with U.S. dollars in a country, effectively eliminating the local currency.

Black Market for Currencies

An illegal network that circumvents official currency exchange restrictions imposed by a government.

European Central Bank (ECB)

The central bank responsible for monetary policy in the Eurozone, aiming to control inflation and stabilize the euro.