Summary Background Information Lecture 7

Summary Background Information Lecture 7 - Summary...

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Summary Background Information Lecture 7 1. Nominal exchange rate: the rate, or price, at which two currencies can be traded for each other 2. Appreciation: an increase in the value of a currency relative to other currencies 3. Depreciation: a decrease in the value of a currency relative to other currencies 4. Flexible (floating) exchange rate: an exchange rate whose value is not officially fixed but varies according to the supply of demand for the currency in the foreign exchange market 5. Foreign exchange market: the market on which currencies of various nations are traded for one another 6. Fixed exchange rate: an exchange rate whose value is set by official government policy 7. Real exchange rate: the price of the average domestic good or service relative to the price of the average foreign good or service, when prices are expressed in terms of a common currency 8. Fundamental value of the exchange rate (or equilibrium exchange rate):
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Unformatted text preview: the exchange rate that equates the quantities of the currency supplied and demanded in the foreign exchange market 9. Devaluation: a reduction in the official value of a currency (in a fixed exchange rate system) 10. Revaluation: an increase in the official value of a currency (in a fixed exchange rate system) 11. Overvalued exchange rate: an exchange rate that has an officially fixed value greater than its fundamental value 12. Undervalued exchange rate: an exchange rate that has an officially fixed value less than its fundamental value 13. Foreign exchange reserves: foreign currency assets held by a central bank for the purpose of purchasing the domestic currency in the foreign exchange market 14. Speculative attack: a massive selling of domestic currency assets by financial investors...
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