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16 Cards in this Set
- Front
- Back
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Trade Balance |
The value of a country’s exports minus the value of its imports; sometimes referred to as net exports. |
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Trade Surplus |
The condition that exists when the value of a country’s exports is greater than the value of its imports. |
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Trade Deficit |
The condition that exists when the value of a country’s imports is greater than the value of its exports. |
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Foreign Exchange Market |
The market in which currencies of different countries are exchanged. |
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Exchange Rate |
The price of one currency in terms of another currency. |
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Flexible Exchange Rate System |
The system whereby exchange rates are determined by the forces of supply and demand for a currency. |
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Appreciation |
An increase in the value of the one currency relative to other currencie |
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Depreciation |
A decrease in the value of one currency relative to other currencies. |
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Purchasing Power Parity (PPP) Theory |
Theory stating that exchange rates between any two currencies will adjust to reflect changes in the relative price levels of the two countries. |
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Fixed Exchange Rate System |
The system whereby a nation’s currency is set at a fixed rate relative to all other currencies, and central banks intervene in the foreign exchange market to maintain the fixed rate. |
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Overvalued |
A currency is overvalued if its price in terms of other currencies is above the equilibrium price. |
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Undervalued |
A currency is undervalued if its price in terms of other currencies is below the equilibrium price. |
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Devaluation |
A government action that changes the exchange rate by lowering the official price of a currency. |
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Revaluation |
A government act that changes the exchange rate by raising the official price of a currency. |
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Managed Float |
A managed flexible exchange rate system, under which nations now and then intervene to adjust their official reserve holdings to moderate major swings in exchange rates. |
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Optimal Currency Area |
A geographic area in which exchange rates can be fixed or a common currency used without sacrificing domestic economic goals, such as low unemployment. |
