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Flashcards in Class Chapt 10 Deck (19)
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1
Q

4 factors that affect the DEMAND for Canadian Dollar?

A
  1. The exchange rate
  2. World demand for Canadian exports
  3. Interest rates in Canada and other countries
  4. The expected future exchange rate
2
Q

talking about demand of currency, Other things remaining the same, the higher the exchange rate?

A

the smaller is the quantity of Canadian dollars demanded

3
Q

4 facts affect the SUPPLY for Canadian Dollar?

A
  1. The exchange rate
  2. Canadian demand for imports
  3. Interest rates in Canada and other countries
  4. The expected future exchange rate (speculators buying increase currency price)
4
Q

Talking about the supply of currency, the higher the exchange rate?

A

the greater is the quantity of Canadian dollars supplied

5
Q

What is called “the Canadian interest rate differential”?

A

The Canadian interest rate minus the foreign interest rate.

6
Q

If the Canadian interest differential rises? the demand for Canadian dollar increases or decreases?

A

increases.

7
Q

If the expected future exchange rate for Canadian dollars rises, the demand curve for Canadian dollars shifts right or left?

A

shifts rightward

8
Q

What is Arbitrage? .

A

Buying in one market and selling for a higher price in another related market

9
Q

4 outcomes of Arbitrage

A

-The law of one price
- No round-trip profit
- Interest rate parity (rate of return on currency)
- Purchasing power parity (big mac index)

10
Q

3 exchange rate policies

A
  1. Flexible exchange rate (no intervention)
  2. Fixed exchange rate (government intervention)
  3. Crawling peg (mimic other currencies)
11
Q

What is a “Balance of Payments Accounts”?

A

A country’s records of international trading, borrowing, and lending.

12
Q

What are the 3 balance of payments accounts

A
  1. Current account (exports − imports + net interest income + net transfers)
  2. Capital and financial account (foreign investment in Can - Can investment abroad)
  3. Official settlements account (records the change in Canadian official reserves)
13
Q

what are the Canadian official reserves?

A

Government’s holdings of foreign currency

14
Q

The sum of the balances of the three accounts always equals?

A

zero.

15
Q

If a country’s net exports are positive, the country is a net supplier of funds, so the quantity of loanable funds in that country is less or more than national saving?

A

less

16
Q

What is a net debtor nation?

A

a country that during its entire history has borrowed more than it has lent.

17
Q

What is the formula for the “Current Account Balance”

A

CAB = NX + Net interest income + Net transfers (where NX is net exports)

18
Q

What is the equation for NX

A

NX = (T – G) + (S – I)

19
Q

Explain NX = (T – G) + (S – I)

A

T = net taxes
G = government expenditure on goods and services.
S = saving,
I = investment