Intl Econ Key Terms Chp. 15

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Freely Floating Exchange Rate System or Clean Float

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The flexible exchange rate system under which the exchange rate is always determined by the forces of demand and supply without any gov. intervention in foreign exchange markets

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Optimum Currency Area or bloc

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Refers to a group of nations whose national currencies are linked through permanently fixed exchange rates and the conditions that would make such an area optimum.

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European Monetary System (EMS)

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Org. formed by the members of the EU in 1979 based on the creation of the European Currency unit (ECU) of account, limited exchange rate flexibility among members, and formation of the European Monetary Fund (EMF)

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European Currency Unit (ECU)

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The unit of account defined by the EMS, based on the weighted avg. of the currencies of the EU members

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European Monetary Cooperation Fund (EMCF)

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The institution of the EMS that provides short-term and medium term balance of payments assistance to member nations

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European Monetary Institute (EMI)

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The forerunner of the European Central Bank (ECB) that was set up in Jan. 1994 by the Maastrich Treaty to further centralize members' macroeconomic policies and reduce exchange rate fluctuation margins

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Maastricht Treaty

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The treaty that called for the creation of the EMI as a forerunner of the ECB and the monetary union by the EU by 1997 or 1999

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European Monetary Union (EMU)

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The 12 members of the EU that have adopted the Euro as their common currency and have established the ECB to conduct their common monetary policy.

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European Central Bank (ECB)

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The institution similar to the Fed Reserve in the US that would control the money supply and issue the single currency of the EU

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Currency Board Arrangements (CBA'S)

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Exchange Rate arrangement whereby the nation rigidly fixes the exchange rate and its central bank loses its ability to conduct an independent monetary policy by allowing the nations supply to increase or decrease only in response to balance of payments surpluses or deficits

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Dollarization

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The situation whereby a nation adopts another nation's currency as its legal tender.

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Adjustable Peg System

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system under which exchange rates or par values are periodically changed to correct balance of payments disequilibria

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Managed Floating Exchange Rate System or Dirty Float

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The policy of intervention in foreign exchange markets by monetary authorities to smooth out short-run fluctuations without attempting to affect the long-run trend in exchange rates

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International Macroeconomic Policy Coordination

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The modifications of national economic policies in recognition of international interdependence