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61 Cards in this Set
- Front
- Back
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Autarky or closed economy: A country that does not trade with other countries
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Autarky or closed economy = no trade, Autarky or closed economy = no trade, Autarky or closed economy = no trade
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Trade protection: A government places restrictions, limits, or charges on exports or imports.
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Trade protection: restrictions and charges, Trade protection: restrictions and charges, Trade protection: restrictions and charges
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World price: The price of a good or service in world markets for those to whom trade is not restricted.
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World price: The price of a good or service in world markets for those to whom trade is not restricted.
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Domestic price: The price of a good or service in the domestic country, which may be equal to the world price if free trade is permitted or different from the world price when the domestic country restricts trade.
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Domestic price: free trade = world price, unequal if restrictions, Domestic price: free trade = world price, unequal if restrictions, Domestic price: free trade = world price, unequal if restrictions,
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Net exports: The value of a country’s exports minus the value of its imports over some period.
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Net exports: exports - minus imports, Net exports: exports - minus imports
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Trade surplus: Net exports are positive; the value of the goods and services a country exports are greater than the value of the goods and services it imports.
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Trade surplus: Positive net exports, export value greater than import value, Trade surplus: Positive net exports, export value greater than import value
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Trade deficit: Net exports are negative; the value of the goods and services a country exports is less than the value of the goods and services it imports.
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Trade deficit: negative net exports are negative, Trade deficit: negative net exports are negative Trade deficit: negative net exports are negative
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102 Terms of trade = prices of exports rose more than imports, 102 Terms of trade = prices of exports rose more than imports, 102 Terms of trade = prices of exports rose more than imports
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Foreign direct investment: Ownership of productive resources in a foreign country. Foreign direct investment: Ownership of productive resources in a foreign country.
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Multinational corporation: A firm that has made foreign direct investment in one or more foreign countries, Multinational corporation: A firm that has made foreign direct investment in one or more foreign countries
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Gross national product measures the total value of goods and services produced by the labor and capital of a country’s citizens. Gross national product measures the total value of goods and services produced by the labor and capital of a country’s citizens.
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Gross domestic product over a period is the total value of goods and services produced within a country’s borders. Gross domestic product is the total value of goods and services produced within a country’s borders.
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absolute advantage = can produce the good at lower cost of resources, absolute advantage = can produce the good at lower cost of resources, absolute advantage = can produce the good at lower cost of resources
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comparative advantage = opportunity cost in terms of other goods is lower, comparative advantage = opportunity cost in terms of other goods is lower, comparative advantage = opportunity cost in terms of other goods is lower
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Ricardian model of trade labor is only factor of production, Ricardian model of trade labor is only factor of production,Ricardian model of trade labor is only factor of production
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Ricardian model: technology makes differences, Ricardian model: technology makes differences , Ricardian model: technology makes differences
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Heckscher and Ohlin model: capital and labor, Heckscher and Ohlin model: capital and labor, Heckscher and Ohlin model: capital and labor
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Tariffs: Taxes on imported good, Tariffs: Taxes on imported good, Tariffs: Taxes on imported good
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Export subsidies: payments to firms that export goods, Export subsidies: payments to firms that export goods, Export subsidies: payments to firms that export goods
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Minimum domestic content: Requirement that some percentage of product must be from the domestic country, Minimum domestic content: Requirement that some percentage of product must be from the domestic country
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Voluntary export restraint: country voluntarily restricts exports to avoid tariffs or quotas imposed by trading partners. Voluntary export restraint: country voluntarily restricts exports to avoid tariffs or quotas imposed by trading partners.
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Export subsidies are payments by a government to its country’s exporters. Export subsidies are payments by a government to its country’s exporters.
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Free Trade Areas = No trade barriers, Free Trade Areas = No trade barriers, Free Trade Areas = No trade barriers
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Customs Union: No member trade barriers but restrictions with non-members.Customs Union: No member trade barriers but restrictions with non-members. Customs Union: No member trade barriers but restrictions with non-members.
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Common Market: Custom Union + no barriers between members for labor and capital, Common Market: Custom Union + no barriers between members for labor and capital, Common Market: Custom Union + no barriers between members for labor and capital
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Economic Union: Common Market + members have common institutions and economic policy, Economic Union: Common Market + members have common institutions and economic policy, Economic Union: Common Market + members have common institutions and economic policy
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Monetary Union: Economic Union + currency, Monetary Union: Economic Union + currency, Monetary Union: Economic Union + currency
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North American Free Trade Agreement (NAFTA) = free trade area
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North American Free Trade Agreement (NAFTA) = free trade area
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European Union = economic union, European Union = economic union, European Union = economic union,
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euro zone = monetary union, euro zone = monetary union, euro zone = monetary union
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current account: measures the flows of goods and services; current account: measures the flows of goods and services; current account: measures the flows of goods and services;
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capital account: capital transfers + acquisition and disposal of non- produced, capital account: capital transfers + acquisition and disposal of non- produced, capital account: capital transfers + acquisition and disposal of non- produced
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financial account: records investment flows. financial account: records investment flows. financial account: records investment flows.
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balance of payments: includes current account, capital account and financial account, balance of payments: includes current account, capital account and financial account, balance of payments: includes current account, capital account and financial account
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Merchandise and services: Merchandise of all raw materials and manufactured goods bought, sold, or given away
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Merchandise and services: Merchandise of all raw materials and manufactured goods bought, sold, or given away
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Unilateral transfers are one-way transfers of assets, such as money received from those working abroad and direct foreign aid.
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Unilateral transfers are one-way transfers of assets, such as money received from those working abroad and direct foreign aid.
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Income receipts: foreign income from dividends on stock holdings and interest on debt securities
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Income receipts: foreign income from dividends on stock holdings and interest on debt securities
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Capital transfers include debt forgiveness and goods and financial assets that migrants bring when they come to a country or take with them when they leave. Capital transfers also include the transfer of title to fixed assets and of funds linked to the purchase or sale of fixed assets, gift and inheritance taxes, death duties, and uninsured damage to fixed assets.
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Capital transfers include debt forgiveness and goods and financial assets that migrants bring when they come to a country or take with them when they leave. Capital transfers also include the transfer of title to fixed assets and of funds linked to the purchase or sale of fixed assets, gift and inheritance taxes, death duties, and uninsured damage to fixed assets.
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Sales and purchases of non-financial assets that are not produced assets include rights to natural resources and intangible assets, such as patents, copyrights, trademarks, franchises, and leases.
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Sales and purchases of non-financial assets that are not produced assets include rights to natural resources and intangible assets, such as patents, copyrights, trademarks, franchises, and leases.
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Government-owned assets abroad include gold, foreign currencies, foreign securities, reserve position in the International Monetary Fund, credits and other long-term assets, direct foreign investment, and claims against foreign banks.
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Government-owned assets abroad include gold, foreign currencies, foreign securities, reserve position in the International Monetary Fund, credits and other long-term assets, direct foreign investment, and claims against foreign banks.
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Capital Account: Sales and purchases of non-financial assets and Capital Transfers
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Capital Account: Sales and purchases of non-financial assets and Capital Transfers
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Current Account: Merchandise and services, Income receipts, Unilateral transfers
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Current Account: Merchandise and services, Income receipts, Unilateral transfers
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X – M = private savings + government savings – investment, X – M = private savings + government savings – investment
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X minus M = private savings + government savings minus investment,X minus M = private savings + government savings minus investment
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I.M. F. facilitates trade by promoting international monetary cooperation and exchange rate stability, assists in setting up international payments systems, and makes resources available to member countries with balance of payments problems.
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I.M. F. facilitates trade by promoting international monetary cooperation and exchange rate stability, assists in setting up international payments systems, and makes resources available to member countries with balance of payments problems.
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World Bank provides low-interest loans, interest-free credits, and grants to developing countries for many specific purposes
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World Bank provides low-interest loans, interest-free credits, and grants to developing countries for many specific purposes
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World Trade Organization: review and enforces trade agreements
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World Trade Organization: review and enforces trade agreements
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forward exchange rate = exchange rate for a future exchange. forward exchange rate = exchange rate for a future exchange.
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forward exchange rate = exchange rate for a future exchange. forward exchange rate = exchange rate for a future exchange.
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1.44 USD / EUR = $1.44 per euro. USD = price currency and EUR = base currency.
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1.44 USD / EUR = $1.44 per euro. USD = price currency and EUR = base currency.
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A decrease in a direct exchange rate represents an appreciation of the domestic currency relative to the foreign currency.
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decrease in a direct exchange rate = increase value of the domestic currency, decrease in a direct exchange rate = increase value of the domestic currency,
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A increase in a direct exchange rate represents an depreciation of the domestic currency relative to the foreign currency.
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increase in a direct exchange rate = depreciation of the domestic currency, increase in a direct exchange rate = depreciation of the domestic currency,
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A spot exchange rate is the rate for immediate delivery.
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spot exchange = immediate , spot exchange = immediate , spot exchange = immediate
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real exchange rate (domestic/foreign) = spot exchange rate (domestic/foreign) × CPI foreign /CPI domestic
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real exchange rate (domestic/foreign) = spot exchange rate (domestic/foreign) × CPI foreign /CPI domestic
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real exchange rate = spot exchange rate times CPI foreign over CPI domestic
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real exchange rate = spot exchange rate times CPI foreign over CPI domestic
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hedgers = decreasers of foreign exchange risk, hedgers = decreasers of foreign exchange risk, hedgers = decreasers of foreign exchange risk
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speculators = increasers their foreign exchange risk. speculators = increasers their foreign exchange risk. speculators = increasers their foreign exchange risk.
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decrease in USD to EUR exchange rate from 1.44 to 1.42 represents a depreciation of the EUR relative to the USD of 1.39% (1.42 / 1.44 – minus 1 = –0.0139)
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decrease in USD to EUR exchange rate from 1.44 to 1.42 represents a depreciation of the EUR relative to the USD of 1.39% (1.42 / 1.44 – minus 1 = –0.0139)
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decreasein the USD to EUR exchange rate from 1.44 to 1.42 represents an appreciation of the USD relative to the EUR of 1.41%: (1 / 1.42) / (1 / 1.44) –minus 1 = 1.44−1 = 0.0141.
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decreasein the USD to EUR exchange rate from 1.44 to 1.42 represents an appreciation of the USD relative to the EUR of 1.41%: (1 / 1.42) / (1 / 1.44) – minus 1 = 1.44 −minus 1 = 0.0141.
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MXN to USD quote is 12.1 and the USD to EUR quote is 1.42, we can calculate the cross rate of MXN to EUR as 12.1 × times 1.42 = 17.18.
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MXN to USD quote is 12.1 and the USD to EUR quote is 1.42, we can calculate the cross rate of MXN to EUR as 12.1 × times 1.42 = 17.18.
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forward quote of +25.3 when the USD to EUR spot exchange rate is 1.4158 means that the forward exchange rate is 1.4158 + 0.00253 = 1.41833 USD / EUR.
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forward quote of +25.3 when the USD to EUR spot exchange rate is 1.4158 means that the forward exchange rate is 1.4158 + 0.00253 = 1.41833 USD / EUR.
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forward exchange rate quote of +1.787%, when the spot USD to EUR exchange rate is 1.4158, means that the forward exchange rate is 1.4158 times (1 + 0.01787) = 1.4411 USD to EUR.
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forward exchange rate quote of +1.787%, when the spot USD to EUR exchange rate is 1.4158, means that the forward exchange rate is 1.4158 times (1 + 0.01787) = 1.4411 USD to EUR.
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If a forward exchange rate does not correctly reflect the difference between the interest rates for two currencies, an arbitrage opportunity for a riskless profit exists.
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If a forward exchange rate does not correctly reflect the difference between the interest rates for two currencies, an arbitrage opportunity for a riskless profit exists.
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forward premium or forward discount = forward/ spot - minus 1
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forward premium or forward discount = forward/ spot - minus 1
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1.25 USD to EUR, the euro interest rate is 4% per year, and the dollar interest rate is 3% per year, the no-arbitrage one-year forward rate can be calculated as:
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1.25 x (1.03 / 1.04) = 1.238 USD / EUR, 1.25 times (value of 1.03 over 1.04) = 1.238 USD to EUR.
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1.25 USD to EUR, the euro interest rate is 4% per year, and the dollar interest rate is 3% per year, the no-arbitrage one-year forward rate can be calculated as:
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1.25 x (1.03 / 1.04) = 1.238 USD / EUR, 1.25 times (value of 1.03 over 1.04) = 1.238 USD to EUR.
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1.25 USD to EUR, the euro interest rate is 4% per year, and the dollar interest rate is 3% per year, the no-arbitrage one-year forward rate can be calculated as:
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1.25 x (1.03 / 1.04) = 1.238 USD / EUR, 1.25 times (value of 1.03 over 1.04) = 1.238 USD to EUR.
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formal dollarization= country uses the currency of another country.
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formal dollarization= country uses the currency of another country.
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Exchange rate regimes for countries that do not have their own currency: formal dollarization and monetary union
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no currency then formal dollarization or monetary union, no currency then formal dollarization or monetary union
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currency board arrangement is an explicit commitment to exchange domesticcurrency for a specified foreign currency at a fixed exchange rate
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currency board arrangement is an explicit commitment to exchange domesticcurrency for a specified foreign currency at a fixed exchange rate
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conventional fixed peg arrangement, a country pegs its currency within margins of±1% versus another currency
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conventional fixed peg arrangement, a country pegs its currency within margins of±1% versus another currency
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pegged exchange rates within horizontal bands or a target zone, thepermitted fluctuations in currency value relative to another currency or basket ofcurrencies are wider than conventional
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pegged exchange rates within horizontal bands or a target zone, the permitted fluctuations in currency value relative to another currency or basket of currencies are wider than conventional
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crawling peg, the exchange rate is adjusted periodically, typically to adjust forhigher inflation versus the currency used in the peg
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crawling peg, the exchange rate is adjusted periodically, typically to adjust forhigher inflation versus the currency used in the peg
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With management of exchange rates within crawling bands, the width of the bandsthat identify permissible exchange rates is increased over time.
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With management of exchange rates within crawling bands, the width of the bandsthat identify permissible exchange rates is increased over time.
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independently floating currency, the exchange rate is market-determined.
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independently floating curreny, the exchange rate is market-determined.
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Absorption approach: national income must increase relative to national expenditure in order to decrease a trade deficit. AKA national saving must increase relative to domestic investment in order to decrease a trade deficit.
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Absorption approach: national income must increase relative to national expenditure in order to decrease a trade deficit. This can also be viewed as a requirement that national saving must increase relative to domestic investment in order to decrease a trade deficit.
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improvement in a trade deficit requires that domestic savings increase relative to domestic investment, which would decrease a capital account surplus.
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improvement in a trade deficit requires that domestic savings increase relative to domestic investment, which would decrease a capital account surplus.
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