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Balance of Payment

Chapter 29

QuestionAnswer
Arbitrage This is the purchase of an asset (usually a currency) is one market ant its sale in another in order to make profit.
Balance of Payments This is a statistical statement that summarises the economic transactions of the residents of a country with the rest of the world for a specific time period, usually one year.
Balance of trade This is export of goods minus imports of goods (or visible balance).
Capital account of the Balance of Payments This account record capital transfers between a country and the rest of the world.
Currency speculation This is the buying and selling of currencies in order to make profits.
Current account of the Balance of Payments This consists of trade in goods and services, income inflows and outflows and current transfers.
Devaluation This refers to a fall in the value of a country's currency in terms of other currencies.
Equilibrium rate of exchange The rate of exchange that ensures a country's exports are equal to its imports, that is, the correct rate of exchange for that currency.
Financial account of the Balance of Payments This covers transactions in financial assets and financial liabilities.
Fixed exchange rate This is when the government chooses a value for the country's currency relative to all other currencies and keep it fixed at this value.
Floating exchange rate This is when the government allows the value of the currency to move up or down according to demand for and supply of the currency.
Invisible balance This includes export and import of services, income inflows and outflows and current transfers.
Marshall-Lerner Conditions This states that a devaluation will improve a country's balance of trade if the sum of the elasticities of demand for export and imports is greater than 1.
Net errors and omissions This is the balancing item entered in the Balance of Payments figures to ensure that the overall balance of payment is balanced.
Purchasing Power Parity Theory This states that the exchange rate between one current and another is in equilibrium when the domestic purchasing powers of the currencies are equal.
Rate of exchange This is the price of one currency in term of the currencies.
Revaluation This refers to a risk in the value of a country's currency in terms of other currencies.
Created by: jmartineconomics
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