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Balance of Payment
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Balance of Power
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Econ340 Final

International Economics

TermDefinition
Balance of Payment records transactions between domestic & foreign residents over a period of time
Balance of Power Lend from one country to another country
Unilateral Transfer represents the amount of gifts countries receive & give out
Floating Exchange Rate -equilibrium of currency fluctuates -determined by private demand and supply for the currency
Fixed Rates country keep the rate fixed even if it is different from the current equilibrium rate
1.Appreciation 2.Depreciation 1.a rise in market price of a currency 2.a fall in market price of a currency
Revaluation a discrete raising of the par value of a currency
Devaluation a discrete reduction in the fixed par value of a currency
Arbitrage the process of buying & selling to make a reckless pure profit
Reasons for Exchange Rate Policy -High exchange rate -Low exchange rate -Reduce rate variability -To obtain a Macro Goal -Free Float - let the market determine the rate
1.High exchange rate 2.Low exchange rate 1.overvalued currency - high export prices, low import prices 2.undervalued currency - low export prices, high import prices
Clean Float government lets the market determine the exchange rate
Managed or Dirty Float an exchange rate that is generally floating (or fixed) but with the government willing to intervene to attempt to influence the market rate
Pegged exchange rate an exchange rate fixed to another currency
Crawling Peg adjusting the value of the exchange rate based on a formula
Macro Goals -Low rate - (export - imports) up, GDP up -Higher rate - (export - imports) down, GDP down
Adjustable peg the value is fixed, but government may change the pegged-rate value
Single currency advantages 1.Eliminate cost of currency transaction 2.More competitive markets through easier shopping 3.Facilitate free trade 4.Deepens economic integration & strengthens European unity
Single currency disadvantages 1.Single Monetary policy 2.Elimination of exchange rate adjustments 3.Limited central fiscal policy control (government tax & spending policy)
Created by: NickUD
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