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