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27 Cards in this Set
- Front
- Back
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Institutional arrangements countries adopt to govern exchange rates |
International Monetary System |
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A system under which the exchange rate is converting one currency into another is continuously adjusted depending on the laws of supply and demand |
Floating Exchange Rate |
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Currency value is fixed relative to a reference currency |
Pegged Exchange Rate |
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A system under which a country's currency is nominally allowed to float freely against other currencies, but in which the govt will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value |
Dirty Float |
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A system under which the exchange rate for converting one currency into another is fixed |
Fixed Exchange Rate |
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A system to regulate fixed exchange rates before the introduction of the euro |
European Monetary System |
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What was the purpose of the Bretton Woods conference |
Created the International Monetary Fund (IMF) and the World Bank |
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What is the task of the IMF |
Maintaining order in the international monetary system |
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What is the task of the World Bank? |
Promote development of countries |
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The practice of pegging currencies to gold and guaranteeing convertibility |
Gold Standard |
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The amount of currency needed to purchase one ounce of gold |
Gold Par Value |
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Reached when the income a country's residents earn from exports equals the money residents pay for imports |
Balance of Trade Equilibrium |
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There is a close connection between the money supply and _____________ |
Price Inflation |
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What was the major problem with the gold standard? |
No multinational institution could stop countries from engaging in competitive devaluations |
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Fixed Exchange rates are seen as a mechanism for controlling ____________ and imposing economic _____________ on countries |
Inflation
Discipline |
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Why did the fixed exchange rate system collapse? |
The US inflation rate continued to rise and we were importing more than we were exporting |
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What was the Achilles heel of the Bretton Woods system |
It would only work as long as the US inflation rate remained low and the US did not run a balance of payments deficit |
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Why was the US able to run a large trade deficit and the dollar still gain in value |
US had heavy inflows of capital from foreign investors and high real estate rates |
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Who are the Group of Five countries? |
Great Britain France Germany Japan US |
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System under which some curriencies are allowed to float freely but the majority are either managed by govt intervention or pegged to another currency |
Managed-Float System |
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A fixed exchange rate ensures that high rate ______________ wont happen |
Inflation |
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Means of controlling a countries currency |
Currency Board |
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Occurs when a speculative attack on the exchange value of a currency results in a sharp depreciation in the value of the currency |
Currency Crisis |
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A loss of confidence in the banking system that leads to a run on banks |
Banking Crisis |
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Situation in which a country cannot service its foreign debt obligations, whether private sector or govt debt |
Foreign Debt Crisis |
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Arises when people behave recklessly because they know they will be saved if things go wrong |
Moral Hazard |
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Who can influence the govt policies toward international monetary policy the most |
Businesses |
