Currency Regulation & Intervention Lecture

These vocabulary flashcards cover key terms from the lecture on how trade positions influence currency preferences, the mechanisms central banks use to affect exchange rates, and the role of credibility and competitiveness in currency policy.

Trade Surplus Country

A nation that exports more than it imports and therefore generally favors a weaker domestic currency to keep its goods competitively priced abroad.

Trade Deficit Country

A nation that imports more than it exports and typically prefers a stronger domestic currency to make foreign purchases cheaper.

Strong Currency

A situation in which fewer units of the domestic currency are needed to purchase goods, services, or foreign currency, reflecting higher purchasing power.

Weak Currency

A situation in which more units of the domestic currency are required to buy goods, services, or foreign currency, lowering its purchasing power but boosting export competitiveness.

Central Bank

The monetary authority of a country that manages currency stability, money supply, and interest rates, and can intervene in foreign-exchange markets.

Foreign-Exchange (FX) Market

The global marketplace where currencies are traded and exchange rates are determined.

Direct Intervention

A central bank action that involves selling foreign-exchange reserves and buying back its own currency (or vice versa) to influence the exchange rate.

Verbal Intervention

The use of public statements or guidance by officials to influence market expectations about future currency movements without immediate transactions.

Interest-Rate Intervention

Adjusting policy rates to influence capital flows and, indirectly, the exchange rate; higher rates tend to strengthen a currency, lower rates weaken it.

Monetary Tightening

A policy stance of raising interest rates or otherwise limiting money supply growth, commonly employed to strengthen the domestic currency.

Central-Bank Credibility

Market belief that a monetary authority will follow through on its announced policies, making speculation against its actions costly.

Foreign-Exchange Reserves

Holdings of foreign currencies and gold that a central bank uses to conduct direct intervention and support the value of its own currency.

Battle of Wills

The ongoing contest between central banks attempting to steer exchange rates and investors testing those efforts through market speculation.

Export Competitiveness

The relative advantage a country's goods have in foreign markets, often enhanced by a weaker domestic currency.