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29 Cards in this Set
- Front
- Back
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the use of gold at an established number of units per currency
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Gold standard
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the international monetary system in place from 1945 to 1971 with par value based on gold and the U.S. dollar.
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Bretton Woods System
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specific currency exchange equivalence upheld by government
4. Par value – stated value |
Fixed currency exchange rates
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stated value
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par value
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the concept that a national currency that is also a reserve currency will eventually run a deficit, which eventually inspires a lack of confidence in the reserve currency and leads to a financial crisis.
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Triffin paradox
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an international reserve asset established by the IMF, the unit of account for the IMF and other international organizations.
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Special drawing rights (SDR)
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rates that are allowed to float against other currencies and are determined by market forces.
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Floating currency exchange rates
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the 1976 IMF agreement that allows flexible exchange rates among members.
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Jamaica Agreement
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institution for central bankers, operates as their bank
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Bank for International Settlements
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asset, usually currency, held by a government’s central bank.
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Central reserve asset
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a currency used as a vehicle for international trade or investment.
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Vehicle currency
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a currency used by a country to intervene in the foreign currency exchange markets, often to buy (strengthen) its own currency.
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Intervention currency
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the exchange rates between two currencies for delivery within two business days.
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Spot rate
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trading market for currency contracts deliverable 30, 60, 90, or 180 days in the future.
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Forward currency market
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the exchange rate between two currencies for delivery in the future, usually 30, 60, 90, or 180 days.
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Forward rate
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price offered to buy
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bid price
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sales price
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ask price
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government policies that control the amount of money in circulation and its growth rate.
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Monetary policy
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policies that address the collecting and spending of money by the government
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Fiscal policy
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concept that in an efficient market, like products will have like prices
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Law of one price
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the process of buying and selling instantaneously to make profit with no risk.
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Arbitrage
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the relationship between real and nominal interest rates. The real interest rates will be the nominal interest rate minus the expected rate of inflation.
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Fisher effect
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concept that the interest rate differentials for any two currencies will reflect the expected change in their exchange rates.
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International Fisher effect
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the number of units of a currency required to buy the same amounts of goods and services in the domestic market that one dollar would buy in the United States.
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Purchasing Power Parity (PPP)
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assumption that current market prices fully reflect all available relevant information.
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Efficient market approach
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assumption that the unpredictability of factors suggests that the best predictor of tomorrow’s prices is today’s prices.
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Random walk hypothesis
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exchange rate prediction based on econometric models that attempt to capture the variables and their correct relationships.
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Fundamental approach
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an approach that analyzes data for trends and then projects these trends forward.
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Technical analysis
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record of a country’s transactions with the rest of the world.
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Balance of payments (BOP)
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