Exchange Rates and International Capital Flows - Glossary
Glossary from chapter 15 "Exchange Rates and International Capital Flows" of the book OpenStax, Principles of Macroeconomics for AP® Courses
words
appreciating
when a currency is worth more in terms of other currencies; also called “strengthening”
depreciating
when a currency is worth less in terms of other currencies; also called “weakening”
dollarize
a country that is not the United States uses the U.S. dollar as its currency
foreign direct investment (FDI)
purchasing more than ten percent of a firm or starting a new enterprise in another country
foreign exchange market
the market in which people use one currency to buy another currency
hedge
using a financial transaction as protection against risk
portfolio investment
an investment in another country that is purely financial and does not involve any management responsibility
arbitrage
the process of buying a good and selling goods across borders to take advantage of international price differences
purchasing power parity (PPP)
the exchange rate that equalizes the prices of internationally traded goods across countries
floating exchange rate
a country lets the value of its currency be determined in the exchange rate market
hard peg
an exchange rate policy in which the central bank sets a fixed and unchanging value for the exchange rate
international capital flows
flow of financial capital across national boundaries either as portfolio investment or direct investment
merged currency
when a nation chooses to use the currency of another nation
soft peg
an exchange rate policy in which the government usually allows the exchange rate to be set by the market, but in some cases, especially if the exchange rate seems to be moving rapidly in one direction, the central bank will intervene
Tobin taxes
see international capital flows
This glossary was extracted from Chapter 15 of the book OpenStax, Principles of Macroeconomics for AP® Courses. OpenStax CNX. 4 Aug 2017 which is licensed under a Creative Commons Attribution 4.0 International License.
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