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7 Cards in this Set
- Front
- Back
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Why has the value of the dollar declined against other major currencies during the past 10 years? |
In the past, U.S. Stocks and Bonds have been increasingly popular. However, once the financial crisis hit, the Interest Rates were lower, and the Inflation Rates were somewhat higher causing the value of the dollar to decline against most other major currencies. |
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What factors drive the demand and supply for foreign exchange?
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Demand: demand for another countries products. Demand increases as the local currency depreciates. Supply: Willingness to exchange a currency for other currencies. Supply increases as the local currency appreciates. |
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What is the difference between nominal and real exchange rates?
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Nominal focuses on the price of one currency relative to another currency, while Real focuses rate as which goods and services in one country can be exchanged for goods and services in another country. |
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What is purchasing power parity?
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The idea that exchange rates move to equalize the purchasing power of different currencies. |
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What are the three factors that prevent the PPP theory from being a complete and accurate exchange rate theory?
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1. Not all products can be traded internationally 2. Not all products are identical 3. Governments impose barriers to trade |
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What does the text mean in regards to "Flight by Quality?" |
When other investments are at risk at defaulting (especially during a financial crisis), investors flock to U.S. Treasuries as the treasury is viewed as the safest investment in the world, as chances of a defaulting treasury is tiny. |
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What is Dirty Float? |
When a government of country's central bank intervenes to alter the exchange rate of its currency. |
