International Business Chapter 10

  1. Gold Standard
    the use of gold at an established number of units per currency
  2. Bretton Woods System
    the international monetary system in place from 1945 to 1971 with par value based on gold and the US dollar
  3. fixed exchange rate
    specific cureence exhange equivalence upheld by government
  4. par value
    stated value
  5. Triffin paradox
    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 that leads to a financial crisis
  6. special drawing rights (SDR)
    an internaitonal reserve asset established by the IMF, the unit of account for the IMF and other international organizations
  7. floating currency exchange rates
    rates that are allowed to float against other currencies and are determined by market forces
  8. Jamaica Agreement
    the 1976 IMF agreement that allows flexible exhange rates among members
  9. Free (clean) float
    perfect competition, no governemtn intervention
  10. managed (dirty) float
    governments intereve in the currency markets as they perceive their national interests to be served
  11. fixed peg
    a country pegs the value of its currency at a fixed rate to another currency
  12. hedging
    a way managers protect against uncertainty
  13. Bank for International Settlements (BIS)
    Institution for central bankers; operates as their bank. Secret.
  14. FX
    foreign exchange
  15. central reserve asset
    asset, usually currency held by a government's central bank
  16. vehicle currency
    a currency used as a vehicle for international trade or investment
  17. intervention currency
    a currency used by a country to intervene in the foreign currency echange markets, often to buy (strengthen) its own currency
  18. spot rate
    the exchange rates beween two currencies for delivery within two business days
  19. forward currency market
    trading market for currency contracts deliverable 30, 60, 90, or 180 dys in the future
  20. forward rate
    the exchange rate between two currencies for delivery in the future, usually 30, 60, 90, or 180 days
  21. bid price
    price offered to buy
  22. ask price
    sale price
  23. monetary policies
    government policies that control the amount of money in circulations and its growth rate
  24. fiscal policies
    policies that address the collecting and spending of money by the government
  25. law of one price
    concept that in an efficient market, like products will have like prices
  26. arbitrage
    the process of buying and selling instantaneously to make profit with no risk
  27. Fisher effect
    the relationship between real and nominal interest rates. The real interest rate will be the nominal interest rate minus the expected rate of inflation
  28. international fisher effect
    concept that the interest rate differentials for any two currencies will reflect the expected change in their exchange rates
  29. efficient market approach
    assumption that current market prices fully reflect all available relevant information
  30. random walk hypothesis
    Assumption that the unpredictability of factors suggests that the best predictor of tomorrow's prices is today's prices
  31. fundamental approach
    exchange rate prediction based on econometric models that attempt to capturethe variables and their correct relationships
  32. techinical analysis
    an approach that analyzes data for trends and then projects these trends forward
  33. Balance of Payments (BOP)
    Record of a country's transactions with the rest of the world
Card Set
International Business Chapter 10
Understanding the International Monetary System and Financial Forces