Term
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Definition
| Consumer domestic spending on goods and services |
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Term
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Definition
| Income growth compared to other nations. Relatively higher rates of growth could signal inflation. |
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Term
| Normal/Moderate Inflation |
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Definition
Normally measured as a %, rate of increase of goods on a broad scale. Leads to a reduction in purchasing powerof one unit of currency.
Normal inflation is a common side effect of a growing economy |
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Term
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Definition
| Advanced levels of inflation, price increases may exceed 100%. A sign of instability which can cause people to lose confidence in a currency and invest in hard assets rather than paper. |
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Term
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Definition
| Opposite of inflation leads to a reduction in prices, a reduced amount of money chasing a large amount of goods. |
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Term
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Definition
| ROR for an investment minue the rate of inflation for the same period |
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Term
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Definition
| Similar to the adjusted rate of return but the Real Rate also takes into account factors such as taxation, transaction costs, etc. |
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Term
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Definition
| Don't factor in inflation or other variables |
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Term
Employment
Economic Indicators |
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Definition
| Unemplyment rate, new unemployment claims, average workweek, non-farm payroll, manufacturing payroll, agriculture payrolls fluctuate by season and are excluded |
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Term
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Definition
Form of accounting that covers all transactions that take place between a country and the rest of the world in a period (year).
ex - US exports more goods to Egypt than we import so the US runs a credit with Egypt
*Largest factor in affecting the Balance of Payments is the Balance of Trade |
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Term
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Definition
Typically limited to balance of physical goods, can also include some services.
BOT = Exports - Imports |
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Term
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Definition
Country's financial account. Shows changes in foreign ownership of assets within the country in comparison to changes in domestic ownership of assets outside of the country.
Foreign ownership within - Domestic ownership outside |
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Term
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Definition
Country's net income in relation to current assets, goods and services.
Includes: Exports - Imports, Interest Rec'd from foreign investments vs interest paid to foreign investors and other transfers of money.
Current Account surplus or increase caused by trade surplus
Countries with low labor cost, cheap products, low inflation export more than they import and have a surplus
Low inflation = Surplus, High = Defecit
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Term
| Gross National Product GNP |
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Definition
| Total value of all goods and services produced and shipped inside inside and outside a country. Adjusted for inflation. |
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Term
| Gorss Domestic Product GDP |
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Definition
| Total value of all goods and services produced WITHIN US boundaries. |
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Term
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Definition
| Theory that as interest rates are cut in one country, there will be a flow of money to interest-bearing investments outside of the country. |
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Term
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Definition
| Goods are priced equally when exchange rates are factored in. Over the long term it has a more important effect on exchange rates. |
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Term
| Foreign Investment Indicators |
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Definition
| As money flows into a country with an undervalued currency, generally the currency will appreciate in value. |
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Term
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Definition
| Monitor and manage economic trands, interest rates, money supply and inflation. (Federal Reserve Board) |
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Term
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Definition
| Buy their own currency to increase value and sell it to decrease the value |
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Term
| Reasons for Central Bank Intervention |
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Definition
| Fulctuations in the fiscal and monetary policy as well as fluctuations related to the balance of trade (weaken currency) |
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Term
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Definition
| To offset of nuetralize the effect an intervention will have on the money supply |
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Term
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Definition
| Electronic service for transferring funds between Federal Reserve Banking system participants |
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Term
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Definition
| Policies that governments use to control and stabilize their own economy. Including taxation, changing interest rates, changes to gov't spending and debt. |
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Term
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Definition
| Interest rate that commercial banks charge to their best clients |
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Term
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Definition
| Rate the Fed charges to member institutions on overnight loans to meet reserve requirements |
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Term
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Definition
| Rate charged by member banks of the Fed to other member banks for overnight loans |
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Term
| Bank for International Settlements BIS |
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Definition
| International organization to facilitate cooperation between the central banks of various countries. Serves as a bank for central banks around the world |
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Term
| International Monetary Fund IMF |
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Definition
| Established to help encourage international trade, promote global stability of currency, foster economic growth, and reduce poverty |
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Term
| World Trade Organization WTO |
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Definition
| Works toward including all nations in development, trade and globalization. Provides low interest loans, interest free credits and grants to developing countries to foster and further causes such as education, health, infrastructure etc |
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Term
| Clearing House Interbank Payment System CHIPS |
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Definition
| Clearing high value currecny transactions in the interbank market. Handles the majority of forex transactions that originate in the US |
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Term
| Continuous Link Settlement - CLS |
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Definition
| Automated system that handles the settlement of foreign exchange transactions between banks which subscribe to the service |
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Term
| Theory of Elasticity of exchange rates |
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Definition
Elastic - heavily influenced by the second variable
Inelastic - not heavily influenced by the second variable
Forex - 1st variable is the value of the currency, second is BOT
Elasticity is higher in relation to long-term exchange rates rather than short-term rates |
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Term
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Definition
There is a direct relationship between inflation and interest rates.
N=R+I or R=N-I
Real interest rate plus the rate of inflation equals the nominal interest rate |
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Term
| International Fisher Effect |
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Definition
Economic theory that states that an expected change in the current exchange rate between any two currencies is approximately equivalent to the difference between the two countries' nominal interest rates for that time.
[image]
"E" represents the % change in the exchange rate
"i1" represents country A's Interest rate
"i2" represents country B's interest rate
Country which pays lower interest has lower inflation |
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