All Flashcards
How does increased tourism affect the FOREX market?
Increased tourism increases demand for a country's currency, leading to appreciation.
How do higher incomes affect the FOREX market?
Higher incomes can lead to increased demand for imports and foreign currency, potentially causing depreciation.
How does higher inflation affect a country's currency?
Higher inflation can decrease demand for a country's currency, leading to depreciation.
How do higher interest rates affect capital flows?
Higher interest rates attract financial capital, increasing demand for a country's currency and causing appreciation.
How does a weaker currency affect GDP?
A weaker currency (depreciation) can lead to increased exports, boosting GDP.
How does a stronger currency affect GDP?
A stronger currency (appreciation) can lead to decreased exports, lowering GDP.
How do differences in real interest rates affect capital flows?
Differences in real interest rates drive capital flows. Higher rates attract financial capital.
If a country has a current account deficit, what must be true about its capital account?
The country must have a capital account surplus.
How does increased government spending affect exchange rates?
Increased government spending (fiscal policy) can influence exchange rates depending on its effects on interest rates and inflation.
How do central bank actions affect exchange rates?
Central bank actions like interest rate adjustments (monetary policy) affect exchange rates by influencing capital flows.
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 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.