Studied by 10 peoplebalance of payment accounts
a summary of the country's transactions with other countries
current account
a country's balance of payments on goods and services plus net international transfer payments and factor income
trade balance
gap between exports and imports
capital and financial account
the inflow and outflow of funds that impact a country's foreign assets and liabilites
current account is made up of:
net exports
investment income
net transfers
foreign direct investment
Investment made by a foreign company in the economy of another country
net capital outflow
the difference between the purchase of foreign and domestic assets purchased by foreigners
exchange rate
the price at which currencies from different countries are traded
foreign exchange market
a market in which currencies of different countries are bought and sold
exchange rate regime
the system a country uses to establish the exchange rate of its own currency against other currencies
fixed exchange rate
a country ties its official exchange rate to another country's currency
floating exchange rate
where a country's currency price is determined by the forex market
dual exchange rate
a country uses an official fixed exchange rate for imports and exports and current account transactions
currency appreciation
when the value of one country's currency increases in relation to another country's currency
currency appreciation factors:
consumer tastes
relative inflation
relative incomes
relative interest rates
currency depreciation
when the value of a currency in a floating exchange rate regime falls
equilibrium exchange rate
the exchange rate where the demand for a currency is equal to the quantity of that currency being supplied
supply of currency
based on a country's demand for imported goods from other countries
disequilibrium
occurs when there is a deficit or surplus in a country's BOP
demand for currency
a direct result of the demand for a country's export goods and investors looking to invest in the country
nominal exchange rate
the rate of exchange that does not account for the difference in aggregate price levels for the same products in two different countries
real exchange rate
the price of domestic goods in terms of foreign goods that accounts for inflation
Smoot-Hawley Act
Increased tariffs in order to limit import competition during the Great Depression
General Agreement on Tariffs and Trade (GATT)
a trade agreement that contained loopholes enabling countries to avoid trade-barrier reduction agreements
World Trade Organization (WTO)
a permanent global institution to promote international trade and to settle international trade disputes
multinational corporations
companies based in more than one country
trade surplus
when a country exports more than it imports
trade deficit
when a country imports more than it exports
appreciation
an increase in value
depreciation
a lessening in value
international capital flows
movement of monetary funds and financial capital between open economies
capital inflow
the net inflow of funds into a country
capital outflow
domestic money invested abroad
Note
Flashcard