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Navya Y.

Moksha S.

and Elizabeth D.

Fixed Exchange Market & Market Intervention

Balance of Payments

Fixed Exchange Rates- Costs

-A country must keep large quantities of foreign-currency on hand

for stabilization needs.

-Monetary policy used to stabilize the exchange rate is diverted

from other policy goals.

-Foreign exchange controls distort incentives for importing and

exporting goods and services.

Financial Account

sales and purchases of assets between governments

Exchange Rate Regimes

also includes private sales and purchases

Basic Rule Of Balance of Payments

Currency Appreciation and Depreciation

Current Account (CA) + Financial Accounts (FA) =0

the total flows into a country and total flows out must equal zero

Fixed Exchange Rates:

When government keeps the exchange rate against some other currency at or near a particular target.

Floating Exchange Rates:

When government lets the exchange rate go wherever the market takes it.

Appreciation:

An increase in the value of one currency in terms of another.

Depreciation:

The loss of value of a country's currency with respect to one or more foreign reference currencies.

Monetary Policy And Exchange Rates

Current Account

the balance of payments on goods and services plus factor income and international transfers

  • Factor income: payments for the use of factors of production owned by residents of other countries
  • International transfers: funds sent by residents of one country to residents of another

Questions

Determinants of Exchange Rates

  • Name two causes of a Currency's Appreciation and Depreciation?
  • What are the two types of exchange rates?
  • What is currency appreciation?
  • What is the foreign exchange market?
  • What is current account?
  • What is financial account?
  • What is the basic rule of Balance of Payments?
  • What is Balance of Payment Accounts?
  • What is an example of capital inflows?
  • What is an example of capital outflows?

-Differentials in Inflation

-Differentials in Interest Rates

-Current-Account Deficits

-Public Debt

-Terms of Trade

-Political Stability and Economic Performance

Balance of Payments Accounts

  • a summary of the country's transactions with other countries

Balance of Trade

  • the difference between a country's imports and exports
  • balance of trade is the largest component of the country's balance of payments
  • a country has a trade deficit if its imports are more than its exports

Demand and Supply of Currency

  • vice versa for trade surplus

Euro 0.731240

British Pound 0.606815

Indian Rupee 62.665001

Australian Dollar 1.149670

Canadian Dollar 1.108200

Emirati Dirham 3.672500

Swiss Franc 0.895152

Chinese Yuan 6.048950

Malaysian Ringgit 3.333200

New Zealand Dollar 1.214951

Foreign Exchange Market

Foreign Exchange Market:

International transactions require a market in which currencies

can be exchanged for each other.

Exchange Rates:

The prices at which currencies trade, as

determined by the foreign exchange market.

INTERNATIONAL CAPITAL FLOW

More Words

Works Cites

Financial Market- where traders buy and sell stocks, bonds, derivatives, foreign exchange and commodities.

  • businesses go to raise cash to grow
  • companies reduce risks
  • investors make money (openings)

Ex: New York Stock Exchange

Goods Market- Markets in which outputs of goods and services are sold, also called product markets.

  • "tangible market"
  • "free market"
  • food, clothing, luxury goods and a variety of other items

  • http://www.investopedia.com/exam-guide/cfa-level-1/global-economic-analysis/foreign-exchange-parity-influences.asp
  • http://www.investopedia.com/terms/b/bot.asp
  • http://www.investopedia.com/articles/basics/04/050704.asp

Open Market- International Trade and Finance

Unit 8

More Words

Easy Terms

Capital flows-movement of money for the purpose of investment, trade or business production

  • Capital Outflows- capital flowing out of (or leaving) a particular economy
  • money- purchases in other countries
  • Capital Inflows- Increase in the amount of money available from external or foreign sources for the purchase of local capital assets
  • buildings, land, machines.

Currency- a system of money in general use in a particular country ex: US dollars, pesos, euros

Exports- goods or services sent to another country for sale. ex: ammunitions

Imports- bring goods or services into a country from abroad for sale. ex: oil

Net Exports: difference of exports and imports

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