International Business Ch.11

WWII

by the start of __________, the gold standard was dead

currency board

commits itself to converting domestic currency on demand into another currency at a fixed exchange rate

market forces and government intervention

in recent history, _______________ have determined the value of the dollar

high interest rates

monetary contraction leads to _________ which leads to an inflow of money from abroad which puts upward pressure on a fixed exchange rate

supporting elements of the fixed exchange rate

monetary discipline, speculation, uncertainty, and lack of connection between the trade balance and exchange rates

inflation

monetary expansion can lead to __________ which puts a downward pressure on a fixed exchange rate

supporting elements of the floating exchange rate

monetary policy, automatic trade balance adjustments, and economic recovery following a severe economic crisis

european monetary system

occurred before the introduction of the euro where several members operated within fixed exchange rates

currency crisis

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

managed-float system

once the fixed exchange rate system of Bretton Woods collapsed in 1973 there has been a _______________ in place since

gold standard

practice of pegging currencies to gold in order to guarantee convertibility used by: Great Britain, Germany, Japan, and the U.S. was changed after the industrial revolution

dirty-float system

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

managed-float system

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

U.S. dollar

the Bretton Woods system could only work as long as the ________ inflation rate remained low and they did not run a balance-of-payments deficit

world bank

the ____________ offers low-interest loans to risky customers whose credit ratings are often poor and offers grants and interest-free loans to the world's poorest nations

IMF and world bank

the agreement reached at Bretton Woods established 2 multinational institutions: __________

gold par value

the amount of currency needed to purchase one once of gold

international monetary system

the institutional arrangements that govern exchange rates

fixed exchange rate

they decided upon a _______ at Bretton woods between all countries and only the dollar remained convertible to gold

volatile dollar exchange rate

under a floating exchange rate, market forces have produced a __________

dollarization

when a country abandons its own currency for the dollar happens with countries who are facing severe macroeconomic problems- high inflation

floating exchange rate

when the foreign exchange market determines the relative value of a currency and can change minute to minute

balance-of-trade equilibrium

when the income its residents earn from exports is equal to the money its residents pay to other countries for imports (the current amount of its balance of payments is in balance)

pegged exchange rate

when the value of the currency is fixed relative to a reference currency, such as the U.S. dollar, and then the exchange rate between that currency and other currencies is determined by the reference currency exchange rate

fixed exchange rate

where the values of a set of currencies are fixed against each other at some mutually agreed-on exchange rate

a foreign debt crisis

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

discipline

a fixed rate regime imposes _______ by: 1.) the need to maintain a fixed exchange rate puts a brake on competitive devaluations and brings stability to the world trade environment 2.) a fixed exchange rate imposes monetary _______ on countries curtailing price inflation

banking crisis

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