ch 7 Fixed Exchange Rates and Foreign Exchange Intervention

These flashcards cover key concepts and terms related to fixed exchange rates and foreign exchange intervention.

Fixed Exchange Rate

A system where a country's currency value is tied to another major currency or a basket of currencies.

Sterilization

An offsetting action taken by a central bank to neutralize the impact of foreign exchange interventions on the domestic money supply.

Balance of Payments Crisis

A situation where a country cannot maintain its fixed exchange rate because it lacks sufficient foreign reserves.

Capital Flight

A large-scale exit of financial assets from a country due to economic instability or fear of devaluation.

Foreign Exchange Reserves

Assets held by a central bank in foreign currencies, which are used to back the national currency and influence exchange rates.

Managed Float

An exchange rate regime where a currency is allowed to fluctuate in value but is controlled periodically by government intervention.

Monetary Policy

The process by which a central bank manages the money supply to achieve specific goals, such as controlling inflation or stabilizing the currency.

Fiscal Policy

Government policy regarding taxation and spending to influence the economy.

Official International Reserves

Foreign currency deposits and bonds held by a central bank that are used to stabilize the national currency.

Central Bank Intervention

Actions taken by a central bank in the foreign exchange market to influence the value of its currency.