APMACRO UNIT 6

Balance of Payments Accounts

a summary of a country's transactions with other countries

Current Account

a country's balance of payments on goods and services plus net international transfer payments and factor income

Trade Balance

the difference between a country's exports and imports of goods;

Financial Account

the difference between a country's sales of assets to foreigners and its purchases of assets from foreigners during a given period;

Foreign Exchange Market

the market in which currencies are traded.

Exchange Rates

the prices at which currencies trade.

Appreciates

when a currency becomes more valuable in terms of other currencies.

Depreciates

when the value of an asset is reduced by wear, age, or obsolescence; also, when a currency becomes less valuable in terms of other currencies.

Equilibrium Exchange Rates

the exchange rate at which the quantity of a currency demanded in the foreign exchange market is equal to the quantity supplied.

Purchasing Power Parity

(between two countries' currencies) the nominal exchange rate at which a given basket of goods and services would cost the same amount in each country.

Fixed Exchange Rate

exchange rate regime in which the government keeps the exchange rate against some other currency at or near a particular target.

Floating Exchange Rate

exchange rate regime in which the government lets the exchange rate go wherever the market takes it.

Devaluation

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.