Ch 11 Bus498

Institutional arrangements countries adopt to govern exchange rates

A system under which the exchange rate for converting one currency into another is continuously adjusted depending on the laws of supply and demand

Currency value is fixed relative to a reference crrency

A system under which a country's currency is nominally allowed to float freely against other currencies, but in which the government will intervene, buying and selling currency, if it believes that the currency has deviated too far from its fair value

A system under which the exchange rate for converting one currency into another is fixed

EU system designed to create a zone of monetary stability in Europe, control inflation, and coordinate exchnage rate policies of EU countries

The practice of pegging currencies to gold and guaranteeing convertibility

The mount of currency needed to purchase one ounce of gold

Reached when the income a nation's residents earn from exports equals money paid for imports

System under which some currencies are allowed to float freely, but the majority are either managed by government intervention or pegged to another currency

Means of controlling a country's currency

Occurs when a speculative attack on the exchange value of a currency results in a sharp depreciation in the value of the currency or forces authorities to expend large volumes of international currency reserves and sharply increase interest rates to defend the prevailing exchange rate

A loss of confidence in the banking system that leads to a run on banks, as individuals and companies withdraw their deposits

Situation in which a country cannot service its foreign debt obligations, whether private-sector or government debt

Arises when people behave recklessly because they know they will be saved if things go wrong