International business chapter 10 key terms

fundamental disequilibrium

economic condition in which a trade deficit causes a permanent negative shift in a country's balance of payments

managed float system

exchange-rate system in which currencies float against one another, with governments intervening to stabilize their currencies at particular target exchange rates.

free float system

exchange-rate system in which currencies float freely against one another, without governments intervening in currency markets

efficient market view

view that prices of financial instruments reflect all publicly available information at any given time

Smithsonian agreement

Agreement (1971) among IMF members to restructure and strengthen the international monetary system created at Bretton woods

special drawing right (SDR)

IMF asset whose value is based on a "weighted basket" of four currencies.

Bretton Woods Agreement

agreement (1944) among nations to create a new international monetary system based on the value of the us dollar

Jamaica agreement

agreement (1976) among IMF members to formalize the existing system of floating exchange rates as the new international monetary system

international monetary system

collection of agreements and institutions that govern exchange rates

devaluation

intentionally lowering the value of a nation's currency.

revaluation

intentionally raising the value of a nation's currency

gold standard

international monetary system in which nations link the value of their paper currencies to specific values of gold

Currency board

monetary regime based on an explicit commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate.

international fisher effect

principle that a difference in nominal interest rates supported by two countries' currencies will cause an equal but opposite change in their spot exchange rates.

law of one price

principle that an identical item must have an identical price in all countries when the price is expressed in a common currency.

fisher effect

principle that the nominal interest rate is the sum of the real interest rate and the expected rate of inflation over a specific period

fixed exchange-rate system

system in which the exchange rate for converting one currency into another is fixed by international agreement.

technical analysis

technique that uses charts of past trends in currency prices and other factors to forecast exchange rates

fundamental analysis

technique that uses statistical models based on fundamental economic indicators to forecast exchange rates

inefficient market view

view that prices of financial instruments do not reflect all publicly available information