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4. Global Context
Macro
| Term | Definition |
|---|---|
| International Trade | exchange of goods and services between countries |
| Bilateral Exchange Rates | the value of one currency expressed in another currency |
| Effective Exchange Rates | describes the strength of one currency to a basket of other currencies using an index |
| Exchange Rates | the purchasing power of a currency in terms of what it can buy of other currencies |
| Fixed Exchange Rate | the value of the currency is set against the value of another and that exchange rate doesn't change |
| Floating Exchange Rate | the value of the currency is determined purely by market demand and supply of the currency |
| Hybrid Exchange Rate System | a combination of the characteristics of fixed and floating exchange rates; the currency fluctuates but it doesn't float on a fully free market (e.g managed float) |
| Nominal Exchange Rates | the weight of one currency relative to another, without being adjusted for inflation |
| Real Exchange Rates | when the exchange rate is adjusted for inflation to give a more accurate reflection of purchasing power |
| Absolute Advantage | when a country can produce a good cheaper in absolute terms than another country |
| Comparative Advantage | when a country is able to produce a good cheaper relative to other goods produced; it has a lower opportunity cost |
| Globalisation | the growing interdependence of countries and the rapid rate of change it brings about; movement towards free trade of goods and services, free movement of labour and capital and free interchange of technology and intellectual capital |
| International Competitiveness | the ability of a country to compete effectively and become attractive in international markets |
| J-Curve | a current account will worsen before it improves following a depreciation of the currency |
| Marshall-Lerner Condition | the sum of the price elasticities of imports and exports must be more than one if a currency depreciation is to have a positive impact on the trade balance |
| Terms of Trade | the ratio of an index of a country's export prices to an index of its import prices, calculated by (Average export price index x100)/Average Import Price Index |
| Customs Union | the removal of all tariff barriers between members and the introduction of a common external tariff |
| Economic Union | a common market with a customs union and free movement of goods, services, capital and labour |
| Embargoes | complete ban on trade with a particular country |
| Free Trade | trade with no barriers or restrictions |
| Free Trade Areas | where countries agree to trade goods with other members without protectionist barriers |
| Monetary Union | two or more countries with a single currency |
| Protectionism | when the government enact policies to restrict the free entry of imports into their country, such as tariffs or quotas |
| Quotas | limits placed on the level of imports allowed into a country |
| Tariffs | taxes placed on imported goods in an attempt to prevent people from buying them |
| Trade Creation | when a country moves from buying goods from a high cost to a lower cost producer |
| Trade Diversion | when a country moves from buying goods from a low cost producer to a higher cost producer |
| Absolute Advantage | a country's ability to produce a good using fewer resources than another country |
| Comparative Advantage | a country's ability to produce a good relatively more efficiently (at a lower opportunity cost) |
Created by:
19thomps