- Economic – justified in terms of profitability, relating to economics or the economy.
- Official reserve assets-Credit, Financial Account. Mainly the currencies of the largest and most stable economies in the world. Also, include gold and special drawing rights. Also used to settle international debts and central banks and treasury ministries use them as a store of value.
- Capital flight-a sudden flow of investment capital out of a country
- Sudden Stop-Shifts in expectations that can lead to the sudden cessation of inflows followed by large and destabilizing outflows of financial capital
- Trade balance– reported more frequently than the current account because the trade balance is a less comprehensive measure of trade than the current account. =Exports-imports of goods and services. It is reported more frequently, but: the current account is a more comprehensive measure because it includes investment income and unilateral transfers
- Anti-globalization – justify trade barriers because rich countries are exploiting low-income countries because the only way low-income countries can compete is with sub-standard labor or environmental regulations
- Kuznet’s curve-growth in developing countries is resulting first in falling and then if the world grows
- Pollution spillover-actors, market characteristics, Business cycle impacts
- FX appreciation-if the central bank of Japan sells yen and buys U.S. dollars, the U.S. dollar will appreciate due to the demand of the U.S. dollar increasing, imports tend to increase whenever a nation’s currency appreciates because foreign products become more expensive to domestic consumers. If the central bank of a country with fixed exchange rates sells part of its reserve of foreign currency, the domestic money supply will decrease. If the central bank sells some of its foreign assets, it is paid for with domestic currency, which thus comes out of circulation. So the domestic money supply decreases. Appreciation is a rise in the dollar price of foreign currency. It makes the country’s goods more expensive to foreigners, and thus exports fall and imports rise
- Floating exchange rate-the value of a nation’s money is allowed to “float” up and down in response to the market forces
- Fixed rates-the value of a nation’s money is defined in terms of a fixed amount of a commodity, such as gold in terms of a fixed amount of another currency, such as the U.S. dollar
- Fx intervention and impact on money supply
- Sterilization
- Monetary and fiscal policy
- FX depreciation-a decrease in a currency’s value under a floating exchange rate
- Changing the peg (devaluation)-What is the difference from fixed depreciation
- Interest rate arbitrage-borrow rates are low, a loan where rates are high, the primary linkage between economies, keeps interested rates from diverging too much
- Fixed exchange rate-type of exchange rate system that minimizes the effectiveness of domestic monetary policy to an economy
- Pegged exchange rate-instead of gold, another currency is used to “anchor” the value of the home currency
- Gold Standard-form of fixed exchange rates, nations keep gold as their international reserve
- Dollarization-adoption of another’s the currency
- Forward exchange rate-the price of a currency that will be delivered in the future
- Hedging-bondholders and other interest rate arbitrageurs often use forward markets to protect themselves against the foreign exchange rate risk incurred while holding foreign bonds and other financial assets. Accomplished by buying a forward contract to sell foreign currency at the same time that the bond or interest-earning asset matures.
- Interest rate parity (GRAPH) – an increase in the foreign interest rate will cause the foreign currency to appreciate. Domestic interest rate=foreign interest rate + expected depreciation. If i* people increase demand for foreign currency, and it will appreciate it. Interest parity condition-achieving parity and impact of changes in I, i*, R and F
- Sterilization-the simultaneous sale of foreign bonds and purchase of domestic assets by a central bank to keep the domestic money supply constant; sterilized intervention
- Purchasing power parity (GRAPH)-the concept that the equilibrium value of an exchange rate is at the level that allows a given amount of money to buy the same quantity of goods abroad as it will buy at home. Use an artificial exchange rate to make adjustments for differences in prices.
- Spot market-Buying or selling in the present
- Aggregate supply (GRAPH)-The total output of an economy
- Aggregate demand (GRAPH)-The sum of household consumption, business investment, government spending on final goods and services, and net exports
- Fiscal policy (GRAPH)-Policies related to government expenditures and taxation
- Monetary policy (GRAPH)-National macro-economic policies related to the money supply and interest
- Multiplier effect-The macro-economic concept that a change in spending has an impact on the national product, which is ultimately larger than the original spending change
- Expenditure switching-Policies designed to shift the expenditures of domestic residents. If the problem is a trade deficit, they should shift toward domestically produced goods; if the problem is a trade surplus, they should shift toward foreign goods. Examples of these policies are changes in the exchange rate and changes in tariffs and quotas.
- Expenditure reducing policy – Policies that reduce the overall level of domestic expenditure. These are appropriate for addressing the problem of a trade deficit, and they include cuts in government expenditures and/or increases in taxes.
- The open market operations-The main tool of monetary policy, consisting of the buying and selling of government debt (bills, notes, and bonds) in order to influence bank reserves and interest rates
- Banking crisis-Occurs when the banking system becomes unable to perform its normal lending functions and some or all of a nation’s banks are threatened with insolvency.
- Exchange rate crisis-caused by a sudden and unexpected collapse in the value of a nation’s currency
- Basel Capital Accord-A set of recommended “best practices” designed to help countries avoid banking and financial crises. The accords emphasize capital requirements, supervisory review, and information disclosure.
- Intermediation-banks and other financial institutions pool the savings of households and make them available to businesses that want to invest
- Moral hazard – an incentive to withhold essential information or to act in a manner that creates personal benefits at the expense of the common goal
- Senile industry-to provide a method for older, comparatively disadvantaged to move resources to new industries without hurting the economy; Ex: Landlines, CD’s, VCR’s. To help people with jobs in the industry. Easier to pick these firms than the infant firms. The difficulty lies in the execution. More efficient to directly aid firms and workers. Four arguments in favor of trade protection: infant government, national defense, infant industries, senile industries, protect jobs, retaliation
- Infant government-In developed countries; tax revenue is relatively easy to collect. In developing countries, tariffs are an attractive method of raising government revenue: Goods pass through customs. Administrative costs low. Can act like a corporate income tax or luxury tax: target it to certain goods. Used when getting started.
- Retaliation-Loss of jobs in export industries. Can escalate rapidly for unfair trade practices. Problems: Can lead to escalating trade wars. Free trade benefits all. On the other hand: Since free trade benefits all, if a tariff now will induce others to lower theirs, all eventually benefit. Market size=important; gives them their entire domestic market to themselves, may drive us out
- Production possibility curve (GRAPH)-shows the maximum amount of output possible, given the available supply of inputs. It also shows the trade-off that a country must make if it wishes to increase the output of one of its goods.
- Uruguay round-Most ambitious round. Reformed tariffs and subsidies on agricultural textiles, sensitive areas. Birth to WTO. Extend the trading system into intellectual property rights and services
- Export promotion-
- HPAE-apparent source of most of the growth of the High-Performance Asian Economies is capital accumulation through high savings and investment. To a lesser extent, high rate of education (human capital growth). Other factors such as macro-economic stability, shared economic growth, export promotion, open trade policies, and rapid capital accumulation contributed to the success of these countries.
- Vehicle currency-a currency widely used in contracts by other countries with other countries
- Trade protection– the benefits of protection (higher profits and profits, etc.) go to a small group of producers and are very valuable to them. The costs of protection (the slightly higher prices) are felt by all consumers, but it is usually a small enough price increase that is not worth their time and energy to fight it.
- Participants in foreign exchange markets-commercial banks, corporations, individuals, foreign exchange brokers, nonbank financial institutions, central banks
- Specific tariff– a fixed charge per unit of an imported good. In the sample trade model, labor is assumed to be perfectly mobile between industries
- Tariff-tax imposed by a government on goods entering at its borders; will generally increase inflationary pressures, weaken balance-of-payments positions, and restrict manufacturers’ supply sources.
- Quota-a specific unit or dollar limit applied to a particular type of good.
- Embargo-to refuse to sell to another country
- NAFTA
- Antidumping laws-prevent foreign producers from “predatory pricing” or when a foreign producer intentionally sells its products in the United States for less than the cost of production to undermine the competition and take control of the market.
- Omnibus Trade Act and Competitiveness Act-assisting businesses to be more competitive in world markets as well as on correcting perceived injustice in trade practices; improves U.S. trade in market access, export expansion, and import relief.
- Foreign Corrupt Practices Act (FCPA) – prohibits American executives and firms from bribing officials of foreign governments.
- GATT – first effective worldwide tariff agreement and first multilateral, legally enforceable agreement covering trade and investment in the services sector.
- Boycott – absolute restriction against the purchase and importation. Standards-major source of trade difficulties between the United States and Japan.
- History is subjective.
- Monroe Doctrine – No further European colonization in the New World, the abstention of the United States from European political affairs, and nonintervention of European governments in the governments of the Western Hemisphere.
- Manifest Destiny-chosen people ordained by God to create a model society “sea to shining sea”.
- Reference groups-A society’s accepted basis for responding to external and internal events.
- United States-the greatest percentage of total energy according to the World Energy Consumption charts. The Basel Convention banned the export of hazardous wastes by developed countries. Trade route by sea is the newest trade route to gain popularity. Fewer workers to support future retirees.
- Sovereign-Independent and free from all external control.
- Expropriation-government seizes an investment but makes some reimbursement for the assets.
- Domestication-force foreign investors to share more of the ownership, management, and profits with nationals than was the case before domestication.
- Local Content Laws-NAFTA requires 62 percent of parts and chassis of any cars coming from member countries be NAFTA-originated (in other words, there are limits on foreign cars and parts)
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