AP Macro Unit 6: International Trade & Finance

Vocabulary flashcards covering key concepts related to International Trade & Finance from AP Macro Unit 6.

appreciation

When the price of a currency increases.

depreciation

When the price of a currency decreases.

foreign investment

The money invested abroad on currencies based on the value of interest rates.

foreign exchange market

A market where global currencies are traded.

demand for a currency

International buyers, investors, travelers, and foreign governments/central banks.

supply of a currency

Domestic citizens and domestic government/central bank.

current account

The part of the balance of payments recording a nation's exports and imports of goods/services, investment/factor income, and transfer payments; indicates trade deficit or surplus.

Financial (Capital) Account

The part of the balance of payments account in which all long-term flows of payments are listed (financial assets).

trade deficit

When imports in a country exceed the exports.

trade surplus

When exports in a country exceed the imports.

balance of payments

A record of all economic transactions during a given period between residents of one country and residents of the rest of the world.

increasing interest rates

Increase foreign investment, increasing demand for foreign currency and increasing supply of domestic currency.

decreasing interest rates

Decrease foreign investment, decreasing demand for foreign currency, and decreasing supply of domestic currency.

balance of trade

The difference between a country's total exports and total imports.

flexible (floating) exchange rates

An arrangement where the forces of supply and demand set the price of various currencies.

fixed exchange rates

The official rates of exchange for currencies set by governments; not a dominant mechanism in the international monetary system since 1973.

Managed exchange rates (managed float)

A system where the exchange rate is determined by market forces, but the government/Central Bank intervenes to maintain it within a certain range.

selling bonds (contractionary monetary policy)

Decreases the money supply, which causes interest rates to increase and currency to appreciate.

buying bonds (expansionary monetary policy)

Increases the money supply, which causes interest rates to decrease and currency to depreciate.

Budget deficit

Higher interest rates in the loanable funds lead to currency appreciation and more foreign investment.

Budget surplus

Lower interest rates in the loanable funds lead to currency depreciation and less investment.

An increase in real income

Causes domestic buyers to purchase more imports, leading to a leftward shift of aggregate demand and decreases in the current account.

Euro depreciation

Occurs when Europeans prefer to vacation in the U.S. as it increases the supply of Euros.