Flashcards
Exchange rate
Flashcards do conjunto (12)
- 1Fixed Exchange RateThis occurs when the government seeks to keep the value of a currency fixed against another currency (e.g. China)
- 2Floating Exchange RateThis is when the government does not intervene in the foreign exchange markets but allows market forces to determine the level of a currency
- 3Factors influencing the exchange rate-Inflation
-Interest rates
-Speculation
-Change in competitiveness
-Relative strength of other currencies
-Balance of Payments
-Government Debt
-Government Intervention - 4Advantages of a strong pound-Cheaper imported goods - higher living standards;higher disposable income; more choice
-Lower costs for firms who import - lower prices
-Lower inflation - lower costs - 5Disadvantages of a strong pound-Worsen current account deficits
-Lower global competitive as exports are expensive
-Lower demand for domestic goods - unemployment
-lower economic growth
-Decreased investment - damage in long term - 6Impacts on economy of a depreciation of the currency-Increased demand for domestic goods
-Could cause higher inflation - cost push - imported good are expensive
-Current Account balance should improve
-Higher investment
-higher growth - 7J-curve effect (evaluation)In the short run, depreciation may not improve current account deficit. This is due to the low PED for exports and imports. Initially, the volume of imports will remain steady because contracts are signed.
- 8Diagram of the J-curve effect
- 9Marshall-Lerner ConditionThis is when elasticity of demand for imports and exports are greater than one (elastic). Then the trade balance will improve overtime.
(PED for M + PED for X > 1) - 10Monetary UnionWhen two or more countries share a common currency
- 11Advantages of a single currency (eg Euro)-Transparency
-Lower transaction costs
-Certainty and investment
-Trade creation
-Job creation - 12Disadvantages of the Euro-Loss of economic sovereignty
-Difficulty of conversion
-Loss of control of their interest rates
-External shocks have different impacts on different economies
Informações
- Descrição
- A-Level Economics (Unit 4: Global Economy) FlashCards sobre Exchange rate, criado por Mary Doria em 29-03-2016.
- Criado por
- Mary Doria
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- Avaliação
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