All Flashcards
What is the Balance of Payments?
Tracks all transactions between a country and the rest of the world.
What is the Current Account?
Part of the Balance of Payments that includes net exports, net investment income, and net transfers.
What are Net Exports (NX)?
Exports minus imports of goods and services; the trade balance.
What is the Capital Account?
Part of the Balance of Payments that includes purchases and sales of financial and real assets.
What are Exchange Rates?
The price of one currency in terms of another.
What is Appreciation (currency)?
When a currency's value increases relative to another currency.
What is Depreciation (currency)?
When a currency's value decreases relative to another currency.
What is the FOREX market?
The foreign exchange market where currencies are traded.
What is Net Investment Income?
Earnings from investments abroad minus payments to foreign investors.
What are Net Transfers?
Unilateral transfers like foreign aid, grants, and remittances.
In a FOREX graph, what is on the X-axis?
Quantity of one currency.
In a FOREX graph, what is on the Y-axis?
Price of one currency in terms of another (e.g., Euros per Dollar).
What is the shape of the supply curve in a FOREX graph?
Upward sloping.
What is the shape of the demand curve in a FOREX graph?
Downward sloping.
What does the equilibrium point represent in a FOREX graph?
Where supply and demand intersect, representing the market exchange rate.
How does an increase in demand for a currency shift the demand curve?
It shifts the demand curve to the right.
How does an increase in the supply of a currency shift the supply curve?
It shifts the supply curve to the right.
What does a rightward shift of the demand curve in the FOREX market indicate?
It indicates an increase in the demand for that currency, leading to appreciation.
What does a rightward shift of the supply curve in the FOREX market indicate?
It indicates an increase in the supply of that currency, leading to depreciation.
How would you represent the effect of increased US interest rates on a FOREX graph for the Euro?
The demand curve for the dollar would shift right, and the supply curve for the euro would shift right. The dollar appreciates, and the euro depreciates.
What are the differences between the Current Account and the Capital Account?
The Current Account tracks trade in goods, services, and income, while the Capital Account tracks purchases and sales of assets.
What are the differences between appreciation and depreciation?
Appreciation is an increase in a currency's value, while depreciation is a decrease in its value.
What are the differences between fiscal and monetary policies?
Fiscal policies are government spending and taxation, while monetary policies are central bank actions affecting the money supply and interest rates.
What are the differences between exports and imports?
Exports are goods and services sold to other countries, while imports are goods and services purchased from other countries.
What is the difference between nominal and real exchange rates?
Nominal exchange rates are the rate at which one currency can be exchanged for another. Real exchange rates adjust for differences in price levels between countries.
What is the difference between a trade surplus and a trade deficit?
A trade surplus occurs when a country's exports exceed its imports. A trade deficit occurs when a country's imports exceed its exports.
What is the difference between foreign direct investment (FDI) and portfolio investment?
FDI involves establishing a controlling interest in a foreign business. Portfolio investment involves the purchase of stocks and bonds.
What is the difference between a fixed and a floating exchange rate system?
In a fixed exchange rate system, the government intervenes to maintain a specific exchange rate. In a floating exchange rate system, the exchange rate is determined by market forces.
What is the difference between devaluation and depreciation?
Devaluation is a deliberate downward adjustment of a currency's value by a government in a fixed exchange rate system. Depreciation is a decrease in a currency's value in a floating exchange rate system.
What is the difference between absolute and comparative advantage?
Absolute advantage is the ability to produce a good or service more efficiently than another country. Comparative advantage is the ability to produce a good or service at a lower opportunity cost than another country.