Chap 8 The International Monetary System and Financial Forces

Question 0

Bretton Woods system

Answer 0

The internal monetary system I. Place from 1945 to 1971, with par value based on gold and US dollar

Question 1

Gold standard

Answer 1

The use of gold at an established number of units per currency

Question 2

Fixed exchange rate

Answer 2

Specific currency exchange equivalent upheld by government

Question 3

Par value

Answer 3

Stated value

Question 4

Reserve

Answer 4

Assets held by the central bank, used to back up government liabilities

Question 5

Triffin paradox

Answer 5

A national currency that is also a reserve currency will eventually run a deficit, which leads to lack of confidence in the reserve currency and a financial crisis

Question 6

Special drawing rights (SDRS)

Answer 6

An international reserve asset established by the IMF; the unit of account for the IMF and other international organizations

Question 7

Floating currency exchange rates

Answer 7

Rates that are allowed to float against other currencies and are determined by market forces

Question 8

Jamaica Agreement

Answer 8

The 1976 IMF agreement that allows flexible exchange rates among members

Question 9

Bank for International Settlements (BIS)

Answer 9

Institution for central bankers; operates as their banks

Question 10

Vehicle currency

Answer 10

A currency used as a vehicle for international trade or investment

Question 11

Intervention currency

Answer 11

A currency used by a country to intervene in the gorge in currency exchange markets, often to buy (strengthen) it’s own currency

Question 12

Reciprocal currency

Answer 12

In FX, using the dollar as the base currency, a currency that is quoted as dollars per unit of currency per dollar; also known as direct quote

Question 13

Spot rates

Answer 13

The exchange rates between two currencies for delivery within two business days

Question 14

Forward rate

Answer 14

The exchange rate between two currencies for delivery in the future, usually 30, 60, 90, or 180 days.

Question 15

Forward currency market

Answer 15

Trading market for the currency contracts deliverable 30, 60, 90, or 180 days in the future

Question 16

Bid price

Answer 16

Highest priced buy order that is currently in the market

Question 17

Ask price

Answer 17

Lowest priced sell order that is currently in the market

Question 18

Monetary polices

Answer 18

Government policies that control the amount of money in circulation and its growth rate

Question 19

Fiscal policies

Answer 19

Policies that address the collecting and spending if money by the government

Question 20

Law of one price

Answer 20

Concept that on an efficient market, like products with have like prices

Question 21

Arbitrage

Answer 21

The process of buying and selling instantaneously to make profit with no risk

Question 22

Fisher effect

Answer 22

The relationship between real and nominal interest rates. The real interest rate will be the nominal interest rate minus the expected rate of inflation

Question 23

International Fisher effect

Answer 23

Concept that the interest rate differentials for any two currencies will reflect the expected change in their exchange rates.

Question 24

purchasing power parity (PPP)

Answer 24

PPP shows the number of units of a currency required to buy the same basket of goods and services in the foreign market that one dollar would but in the United States or other home market

Question 25

Efficient market approach

Answer 25

Assumption that current market prices fully reflect all available relevant information

Question 26

Random walk hypothesis

Answer 26

Assumption that the unpredictability of factors suggests that the best predictor of tomorrow’s prices is today’s prices.

Question 27

Fundamental approach

Answer 27

Exchange rate prediction bases in econometrics models that attempt to capture the variables and their correct relationship

Question 28

Technical analysis

Answer 28

An approach that analyzes data for trends and then projects these trends forward

Question 29

Balance of payments (BOP)

Answer 29

Record of a county’s transactions with the rest of the world