Exchange rates Homework Chapter 23

1- Definitions:
a) Exchange rates are the values of one currency for the purpose of conversion to another.
b) Foreign exchange markets are markets where currencies are traded. The foreign exchange market is the largest in the world.
c) Fixed exchange rate systems are generally used to keep a currency stable. It works by fixing the value of one currency to another currency or a valuable commodity such as gold.
d) Flexible/floating exchange rate systems is a system that functions opposite to the way a fixed exchange rate. Rather than being fixed the currency fluctuates. Most of todays most widely traded currencies are floating currencies.
e) A managed exchange rate system is
f) The appreciation of a currency occurs when that currency’s value is going up in regards to the foreign exchange rate markets.
g) The depreciation of a currency occurs when that currency’s value is going down in regards to the foreign exchange rate markets.
h) The revaluation of a currency is when the value of the currency increases as a conscious decision taken by the government.
i) The devaluation of a currency is when the value of a currency is officially lowered by the government.
j) Exports can be defined as the sending of (goods or services) to another country for sale.
k) Imports are to bring (goods or services) into a country from abroad for sale.
l) Inflation is the persistent increase of the average price level in a given economy at a given time.
m) Invest rate: the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.
n) Investment: the action or process of investing money for profit.
o) Trade balance: The difference between a country's imports and its exports. Balance of trade is the largest component of a country's balance of payments
p) Trade balance: The difference between a country's imports and its exports. Balance of trade is the largest component of a country's balance of payments
q) Growth rates: The amount of increase that a specific variable has gained within a specific period and context.
r) Capital flows: The movement of money for the purpose of investment, trade or business production. Capital flows occur within corporations in the form of investment capital and capital spending on operations and research & development.
s) Portfolio investments: A portfolio investment is an investment made by an investor who is not involved in the management of a company. This is in contrast to direct investment, which allows an investor to exercise a certain degree of managerial control over a company.
t) Foreign direct investment: FDI is defined as cross-border investment by a resident entity in one economy with the objective of obtaining a lasting interest in an enterprise resident in another economy.
u) Currency speculation is the buying and selling of foreign currencies with the intention of making a profit from favorable changes in exchange rates.