MACRO - Chapter 6.txt

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MACRO - Chapter 6.txt
2013-12-08 15:51:53
Exchange rates rest world

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  1. Exchange rate
    Price at which one currency exchange for another currency
  2. Foreign exchange market
    Worldwide market where all countries currencies are both and sold in exchange for each other
  3. Currency depreciation
    fall in exchange rate of one country for another
  4. Currency appreciation
    rise in exchange rate of one currency for another
  5. How is exchange rates determined?
    By demand and supply in foreign exchange markets
  6. Law of Demand on Canadian Dollar
    If exchange rate rises quantity demanded of Canadian dollars decreases.
  7. The _____ of one currency is the _____ of another currency
  8. Law of supply for Canadian dollar
    if exchange rate rises, quantity supplied of Canadian dollar increases
  9. Interest rate differential
    difference in interest rates between countries.
  10. Inflation rate differential
    difference in inflation rate between countries.
  11. International transmission mechanisms
    how impacts of exchange rates are transmuted to real GDP and inflation
  12. Purchasing power parity (PPP)
    exchanges rates adjust so that money has equal real purchasing power in any country
  13. Rate of return parity
    rates of return on investments are equal across countries, accounting for expected depreciation/appreciation of exchange rates
  14. Floating exchange rate
    Determined by demand and supply in foreign exchange market
  15. Fixed exchange rate
    Determined by government or central bank
  16. The Market clearing exchange rate
    occurs when the quantity demanded and quantity supplied of Canadian dollars is equal.
  17. Is a higher Canadian dollar good or bad?
    It is bad as a higher exchange rate for the canadian dollar has advantages or imports being less expensive and cross boarder shopping is better but the disadvantages are there would be fewer exports and lower the real GDP