The Foreign Exchange Market - AP Macroeconomics

Holdings of foreign currencies used to influence exchange rates. Used for intervention and crisis management.

A large-scale exit of financial assets from a country. Rapid withdrawal creates currency pressure and instability.

Exchange rates pegged to another currency or a basket of currencies. Government maintains specific exchange rate targets.

Part of the balance of payments recording investment flows. Records portfolio and direct investment flows.

Exports become cheaper, potentially increasing demand. Lower prices increase international competitiveness.

Part of the balance of payments recording capital transactions. Records transfers and non-financial asset transactions.

Causes currency depreciation due to higher supply. Net imports create higher supply of the currency.

Increases currency supply, leading to depreciation. Domestic buyers exchange currency for foreign goods.

Higher inflation typically decreases currency value. Rising prices reduce purchasing power and attractiveness.

Part of the balance of payments recording trade in goods and services. Records exports, imports, and income flows.

To make exports cheaper and boost economic growth. Official reduction in currency value stimulates exports.

Exchange rates primarily market-determined but subject to government intervention. Combines market forces with occasional government action.

Imports become more expensive, potentially reducing demand. Weaker currency increases import costs for consumers.

A situation where a currency experiences a rapid devaluation. Severe depreciation threatens economic stability.

Higher interest rates in the currency's country. Capital flows seek higher returns, increasing demand.

Provides financial assistance and advice to member countries. Promotes global monetary stability and cooperation.

An average exchange rate of a currency against multiple others. Weighted index showing overall currency strength.

Holdings of foreign currencies used to influence exchange rates. Used for intervention and crisis management.

The price of one currency in terms of another. Expressed as a ratio showing conversion between currencies.

Speculation can lead to currency appreciation or depreciation. Expectations about future value drive current demand.

Increases investor confidence, potentially appreciating currency. Reduces risk perception, attracting foreign investment.

Can lead to capital flows affecting currency value. Higher rates attract foreign investment and capital.

Exports become more expensive, potentially reducing demand. Higher prices reduce international competitiveness.

A massive selling of a currency anticipating devaluation. Creates downward pressure forcing potential devaluation.

Exchange rate between two specific currencies. Direct rate between any two currencies.

It decreases in value relative to other currencies. Falling value means less purchasing power abroad.

Imports become cheaper, potentially increasing demand. Stronger currency reduces import costs for consumers.

Exchange rates determined by market forces without direct government control. Supply and demand determine rates freely.

Post-devaluation, trade balance first worsens, then improves. Short-term costs precede long-term trade benefits.