Chapter 19 - The World of International Finance

Exchange Rate

________ is the price at which currencies Trade for one another in the market.

net international inves position

A(n) ________ is the domestic holding of foreign assets minus foreign holdings of domestic assets.

real exchange rate

The price rise caused an increase in Mexicos ________ which caused a large trade deficit to emerge.

Euro

________ is the common currency in Europe.

supply curve

The ________ is the quantity supplied of dollars in exchange for euros.

revaluation

A(n) ________ is an increase in the exchange rate in which a currency is pegged under a fixed exchange rate system.

International transactions

________ in the balance of payments are divided into three types: the current account, the financial account, and financial assets between domestic households, businesses, governments, and residents of the world during a specific time period.

sovereign investment fund

A(n) ________ is the assets accumulated by foreign governments that are invested abroad.

Financial Account

A(n) ________ is the value of a countrys net sales (sales minus purchases) of assets.

Equilibrium

________ in the market for foreign exchange occurs where the demand curve intersects the supply curve.

U.S.

________ financial account surplus= foreign purchases of U.S. assets- ________ purchases of foreign assets.

Power Parity

Purchasing ________ is the theory of exchange rates whereby a unit of any given currency should be able to buy the same quantity of goods in all countries.

demand curve

The ________ represents the quantity demanded of dollars in exchange for euros.

Real Nominal Principle

________ is what matters to people is the real value of money or income- its purchasing power- to the face value of money income.

Real exchange rate

________ takes into account changes in a country's prices over time because of inflation.

Current Account

A _____________ is the sum of net exports (exports minus imports) plus net income received from abroad plus net transfers from abroad.

U.S. current account surplus

___________________ = U.S. exports - U.S. imports

Financial Account

A _____________ is the value of a country’s net sales (sales minus purchases) of assets.

U.S. financial account surplus

____________________= foreign purchases of U.S. assets - U.S. purchases of foreign assets

Capital Account 

A _________________is the value of the capital transfer and transactions in unproduced, nonfinancial assets in the international accounts.