Exchange Rates, Terms of trade, Competitiveness and Monetary Union

T4 CC4 (keywords)

Fixed exchange rate system

A fixed exchange rate system is one where a currency has a fixed value against another currency or commodity. The best example of a fixed exchange rate system is the Gold Standard.

Gold standard

An exchange rate system where the value of a currency was fixed against a weight of gold.

Managed exchange rate system

An exchange rate system where free markets determine the value of a currency but where central banks intervene from time to time to change the value of their currency.

Adjustable peg system

An exchange rate system where currencies are fixed in value in the short term but can be devalued or revalued in the long term.

Terms of Trade

The ratio of export prices to import prices. Show the value of a country’s average export prices relative to their average import prices.

International competitiveness

Refers to a country’s sustained ability to sell its goods and services in domestic and international markets profitably, at a price and quality that is attractive in those markets.

Relative unit labour costs

The measurement of labour costs in one country relative to those in another.

Relative export prices

Are the export prices of a country’s goods compared to the export prices of her main trading partners, expressed as an index.

Monetary union or currency union

A group of countries which share a common currency such as the euro.

Optimum currency area

A group of countries where efficiency would be maximised by sharing a common currency.

Harmonisation

Establishing common standards, rules and levels on everything from safety standards to tariffs, taxes and currencies.

Fiscal union

A group of countries where a central body has some powers over government borrowing, government spending and setting uniform rates of taxation in member countries.