International Finance & Exchange Rates Flashcards

Vocabulary-style flashcards covering international finance, currency supply and demand, exchange-rate systems, and the balance of payments based on lecture notes.

Exports

Goods/services made in Canada and bought by foreigners.

Imports

Goods/services made abroad and bought by Canadians.

Financial inflows

A measurement of when foreigners invest money in Canada.

Financial outflows

A measurement of when Canadians invest money abroad.

Three main types of international investment

Foreign direct investment, portfolio investment, and deposits/loans.

Nominal exchange rate

The price of one currency expressed in another currency.

Appreciation

Occurs when the Canadian dollar rises in value or gets stronger.

Depreciation

Occurs when the Canadian dollar falls in value or gets weaker.

Impact of a stronger Canadian dollar

Imports become cheaper while Canadian exports become more expensive to foreigners.

Impact of a weaker Canadian dollar

Imports become more expensive while Canadian exports become cheaper to foreigners.

Sources of Demand for Canadian dollars

Created by exports and financial inflows because foreigners need C\ to buy Canadian goods or assets.

Sources of Supply of Canadian dollars

Created by imports and financial outflows because Canadians sell C\ to buy foreign goods or assets.

Effect of Demand for $\$C$ increasing

The demand curve shifts RIGHT and the C\ appreciates.

Effect of Demand for C\ decreasing

The demand curve shifts LEFT and the C\ depreciates.

Effect of Supply of $\$C$ increasing

The supply curve shifts RIGHT and the C\ depreciates.

Effect of Supply of $\$C$ decreasing

The supply curve shifts LEFT and the C\ appreciates.

Shifters that increase Export-driven Demand

$\text{World GDP} \uparrow$, trade barriers $\downarrow$, Canadian innovation $\uparrow$, foreign prices $\uparrow$, and Canadian prices $\downarrow$.

Shifters that increase Financial Inflow-driven Demand

Canadian interest rates $\uparrow$, Canadian profitability $\uparrow$, Canada being safer, and expected C\ value $\uparrow$.

Shifters that increase Import-driven Supply

$\text{Canadian GDP} \uparrow$, trade barriers $\downarrow$, foreign innovation $\uparrow$, Canadian prices $\uparrow$, and foreign prices $\downarrow$.

Shifters that increase Financial Outflow-driven Supply

Canadian interest rates $\downarrow$, Canadian profitability $\downarrow$, foreign countries being safer, and expected C\ value $\downarrow$.

Fixed exchange rate

An exchange-rate system where the government sets the value of the currency.

Floating exchange rate

An exchange-rate system where the market sets the value of the currency.

Managed exchange rate

An exchange-rate system where the government sometimes buys or sells currency to influence its value.

Real exchange rate

A measurement of the price of Canadian goods relative to foreign goods.

Current account vs. Financial account

The current account tracks income crossing borders, while the financial account tracks financial and investment flows across borders.