Chapter 38: The Balance of Payments, Exchange Rates, and Trade Deficits

________ and pensions are included because they can be thought of as the financial flows that accompany the exporting and importing of goods and services.

A(n) ________ determined by market forces can, and often does, change daily.

________ generate flows of money into the country, debits cause flows of money out of the country.

________- Flexible exchange rates may destabilize the domestic economy because wide fluctuations stimulate and then depress industries producing exported goods.

________- Governments manipulate an exchange rate through the use of official reserves.

________ and diminished trade- The risks and ________ associated with flexible exchange rates may discourage the flow of trade.

The demand for a currency is ________, while the supply of a currency is upward- sloping.

________ level changes- Changes in the ________ levels of two nations may change the demand and supply of currencies and alter the exchange rate between the two nations currencies.

________- Consists of foreign currencies, reserves held with the International Monetary Fund, and stocks of gold.

________- Imports exceed exports.

________ changes- A decline in the international value of its currency will worsen a nations ________.

________- The sum of all the financial transactions that take place between its residents and the residents of foreign nations.

________ automatically adjust and eventually eliminate balance- of- payments deficits or surpluses.

Exchange controls- The government requires that all currency from another country obtained by US exporters must be sold to the ________.

Changes in tastes- Any change in consumer tastes or preferences for the products of a foreign country may alter the demand for that nations currency and change its ________.

________ show that there are automatic and unavoidable asset transfers.

Purchasing or selling currently produced goods or services across an international border

The transfer of the property rights to either real or financial assets between the citizens of one country and the citizens of another country

The sum of all the financial transactions that take place between its residents and the residents of foreign nations

the current account and the capital and financial account

The section of the balance of payments that summarizes trade in currently produced goods and services

The difference between its exports and its imports of goods

The difference between a countrys exports of goods and services and their imports of goods and services

Imports exceed exports

Exports exceed imports

The total of all transactions in the current account

A countrys international asset transactions

Sum of the deficit on the capital account and the surplus on the financial account

Consists of foreign currencies, reserves held with the International Monetary Fund, and stocks of gold

A nation must make an in-payment of official reserves to its capital and financial account in order to balance it with the current account

An out-payment of official reserves from the capital and financial account must occur to balance that account with the current account

Demand and supply determine exchange rates and in which no government intervention occurs

Governments determine exchange rates and make necessary adjustments in their economies to maintain those rates

Any change in consumer tastes or preferences for the products of a foreign country may alter the demand for that nations currency and change its exchange rate

A nations currency is likely to depreciate if its growth of national income is more rapid than that of other countries

Changes in the relative price levels of two nations may change the demand and supply of currencies and alter the exchange rate between the two nations currencies

Exchange rates equate the purchasing power of various currencies

Changes in relative interest rates between two countries may alter their exchange rate

Investors in one country must sell their currencies to purchase the foreign currencies needed for the foreign investments

The risks and uncertainties associated with flexible exchange rates may discourage the flow of trade

A decline in the international value of its currency will worsen a nations terms of trade

Flexible exchange rates may destabilize the domestic economy because wide fluctuations stimulate and then depress industries producing exported goods

Governments manipulate an exchange rate through the use of official reserves

The government requires that all currency from another country obtained by US exporters must be sold to the federal government

Exchange rates among major currencies are free to float to their equilibrium market levels, but nations occasionally use currency interventions in the foreign exchange market to stabilize or alter market exchange rates

The sum of all the financial transactions that take place between its residents and the residents of foreign nations

The section of the balance of payments that summarizes trade in currently produced goods and services

The difference between a country’s exports of goods and services and their imports of goods and services

Imports exceed exports

Exports exceed imports

The total of all transactions in the current account

A country’s international asset transactions

Sum of the deficit on the capital account and the surplus on the financial account

Consists of foreign currencies, reserves held with the International Monetary Fund, and stocks of gold

Demand and supply determine exchange rates and in which no government intervention occurs

Governments determine exchange rates and make necessary adjustments in their economies to maintain those rates

Exchange rates equate the purchasing power of various currencies

Governments manipulate an exchange rate through the use of official reserves

The government requires that all currency from another country obtained by US exporters must be sold to the federal government

Exchange rates among major currencies are free to float to their equilibrium market levels, but nations occasionally use currency interventions in the foreign exchange market to stabilize or alter market exchange rates