Chapter 7 - Exam 2

Front 1

Foreign exchange rate

Back 1

price of one currency in terms of another

Front 2

appreciation

Back 2

an increase in the value of the currency

Front 3

depreciation

Back 3

a loss in the value of the currency

Front 4

balance of payments

Back 4

a country's international transaction statement, which includes merchandise trade, service trade, and capital movement

Front 5

floating/flexible exchange rate policy

Back 5

willingness of a government to let demand and supply conditions determine exchange rates

Front 6

clean/free float

Back 6

a pure market solution to determine exchange rates

Front 7

dirty/managed float

Back 7

using selective government intervention to determine exchange rates

Front 8

target exchange rates/ crawling bands

Back 8

specified upper or lower bounds within which an exchange rate is allowed to fluctuate

Front 9

fixed rate policy

Back 9

setting the exchange rate of a currency relative to other currencies

Front 10

bandwagon effect

Back 10

the effect of investors moving in the same direction at the same time, like a herd

Front 11

capital flight

Back 11

a phenomenon in which a large number of individuals and companies exchange domestic currencies for a foreign currency

Front 12

gold standard

Back 12

a system in which the value of most major currencies was maintained by fixing their prices in terms of gold

Front 13

common denominator

Back 13

a currency or commodity to which the value of all currencies are pegged

Front 14

bretton woods system

Back 14

a system in which all currencies were pegged at a fixed rate to the US dollar

Front 15

post-bretton woods system

Back 15

a system of flexible exchange rate regimes with no official common denominator

Front 16

international monetary fund
[IMF]

Back 16

international organization that was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements

Front 17

quota

Back 17

the weight a member country carries within the IMF, which determines the amount of its financial contributions, its capacity to borrow from the IMF, and its voting power

Front 18

foreign exchange market

Back 18

the market where individuals, firms, governments, and banks buy and sell currencies of other countries

Front 19

spot transaction

Back 19

the classic single-shot exchange of one currency for another

Front 20

forward transaction

Back 20

a foreign exchange transaction in which participants buy and sell currencies now for future delivery

Front 21

currency hedging

Back 21

a transaction that protects traders and investors from exposure to the fluctuations of the spot rate

Front 22

forward discount

Back 22

a condition under which the forward rate of one currency relative to another currency is higher than the spot rate

Front 23

currency swap

Back 23

a foreign exchange transaction in which one currency is converted into another at time 1, with an agreement to revert it back to the original currency at a specified time2 in the future.

Front 24

offer rate

Back 24

price at which a bank is willing to sell a currency

Front 25

bid rate

Back 25

price at which a bank is willing to buy a currency

Front 26

spread

Back 26

the difference between the offer price and the bid price