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26 Cards in this Set
- Front
- Back
Foreign exchange rate
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price of one currency in terms of another
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appreciation
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an increase in the value of the currency
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depreciation
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a loss in the value of the currency
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balance of payments
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a country's international transaction statement, which includes merchandise trade, service trade, and capital movement
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floating/flexible exchange rate policy
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willingness of a government to let demand and supply conditions determine exchange rates
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clean/free float
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a pure market solution to determine exchange rates
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dirty/managed float
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using selective government intervention to determine exchange rates
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target exchange rates/ crawling bands
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specified upper or lower bounds within which an exchange rate is allowed to fluctuate
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fixed rate policy
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setting the exchange rate of a currency relative to other currencies
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bandwagon effect
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the effect of investors moving in the same direction at the same time, like a herd
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capital flight
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a phenomenon in which a large number of individuals and companies exchange domestic currencies for a foreign currency
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gold standard
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a system in which the value of most major currencies was maintained by fixing their prices in terms of gold
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common denominator
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a currency or commodity to which the value of all currencies are pegged
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bretton woods system
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a system in which all currencies were pegged at a fixed rate to the US dollar
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post-bretton woods system
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a system of flexible exchange rate regimes with no official common denominator
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international monetary fund
[IMF] |
international organization that was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements
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quota
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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
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foreign exchange market
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the market where individuals, firms, governments, and banks buy and sell currencies of other countries
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spot transaction
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the classic single-shot exchange of one currency for another
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forward transaction
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a foreign exchange transaction in which participants buy and sell currencies now for future delivery
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currency hedging
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a transaction that protects traders and investors from exposure to the fluctuations of the spot rate
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forward discount
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a condition under which the forward rate of one currency relative to another currency is higher than the spot rate
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currency swap
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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.
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offer rate
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price at which a bank is willing to sell a currency
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bid rate
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price at which a bank is willing to buy a currency
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spread
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the difference between the offer price and the bid price
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