Tracks all transactions between a country and the rest of the world.

Part of the Balance of Payments that includes net exports, net investment income, and net transfers.

Exports minus imports of goods and services; the trade balance.

Part of the Balance of Payments that includes purchases and sales of financial and real assets.

The price of one currency in terms of another.

When a currency's value increases relative to another currency.

When a currency's value decreases relative to another currency.

The foreign exchange market where currencies are traded.

Earnings from investments abroad minus payments to foreign investors.

Unilateral transfers like foreign aid, grants, and remittances.

The Current Account tracks trade in goods, services, and income, while the Capital Account tracks purchases and sales of assets.

Appreciation is an increase in a currency's value, while depreciation is a decrease in its value.

Fiscal policies are government spending and taxation, while monetary policies are central bank actions affecting the money supply and interest rates.

Exports are goods and services sold to other countries, while imports are goods and services purchased from other countries.

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.

A trade surplus occurs when a country's exports exceed its imports. A trade deficit occurs when a country's imports exceed its exports.

FDI involves establishing a controlling interest in a foreign business. Portfolio investment involves the purchase of stocks and bonds.

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.

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.

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.

Expansionary monetary policy (increasing the money supply) typically leads to currency depreciation.

Contractionary monetary policy (decreasing the money supply) typically leads to currency appreciation.

Fiscal policies (government spending and taxation) can influence exchange rates depending on their effects on interest rates and inflation.

A tariff typically leads to a decrease in imports and an increase in net exports, but can also lead to retaliation.

A quota typically increases the domestic price of imported goods.

A subsidy on exports increases exports, leading to an increase in domestic production.

A decrease in government spending decreases aggregate demand, potentially leading to lower GDP.

Increased taxes decrease disposable income, leading to a decrease in consumer spending.

An increase in interest rates increases the cost of borrowing, leading to a decrease in investment.

A currency depreciation makes exports cheaper and imports more expensive, improving the trade balance in the long run.