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ch 15 econ final
| Question | Answer |
|---|---|
| nominal exchange rate | price of one domestic country's currency in units of another foreign country's currency. rise=appreciating domestic, fall=depreciating domestic |
| foreign exchange market | the global financial market in which currencies are traded and nominal exchange rates are determined. exchange rate (e) in yuan per dollar, quantity is dollars traded |
| demand curve | represents traders trying to buy dollars in the foreign exchange market with chinese yuan. |
| supply curve | traders trying to obtain chinese yuan by selling dollars in foreign exchange market |
| 3 exchange rate regimes | flexible (floating) exchange rate, fixed exchange rate, managed exchange rates |
| flexible (floating) exchange rate | government does not intervene in foreign exchange market |
| fixed exchange market | government fixes a value and intervenes to maintain that value |
| managed exchange rate | system between flexible and fixed exchange rates |
| flexible exchange rate regime | equilibrium exchange rate is the exchange rate that equates the quantity supplied and quantity demanded |
| fixed or pegged exchange rate regime | gov announces a target, or "pegged" exchange. Gov must be prepared to sell/but its currency whenever pegged exchange rate is above or bellow equilibrium exchange rate |
| real exchange rate | ratio of the dollar price of a basket of goods/services in US divided by dollar price of same basket of goods/services in foreign country |