Sections
Key Terms
Key Terms
- appreciating
- when a currency is worth more in terms of other currencies; also called strengthening
- arbitrage
- the process of buying goods and selling goods across borders to take advantage of international price differences
- depreciating
- when a currency is worth less in terms of other currencies; also called weakening
- dollarize
- when a country that is not the United States uses the U.S. dollar as its currency
- floating exchange rate
- a country lets the value of its currency be determined in the exchange rate market
- foreign direct investment (FDI)
- purchasing more than 10 percent of a firm or starting a new enterprise in another country
- foreign exchange market
- the market in which people use one currency to buy another currency
- hard peg
- an exchange rate policy in which the central bank sets a fixed and unchanging value for the exchange rate
- hedge
- using a financial transaction as a protection against risk
- international capital flows
- flow of financial capital across national boundaries either as portfolio investment or as direct investment
- merged currency
- when a nation chooses to use the currency of another nation
- portfolio investment
- an investment in another country that is purely financial and does not involve any management responsibility
- purchasing power parity (PPP)
- the exchange rate that equalizes the prices of internationally traded goods across countries
- soft peg
- an exchange rate policy in which the government usually allows the exchange rate to be set by the market, but in some cases, especially if the exchange rate seems to be moving rapidly in one direction, the central bank will intervene
- Tobin taxes
- see international capital flows