Key Terms

Key Terms

when a currency is worth more in terms of other currencies; also called strengthening
the process of buying goods and selling goods across borders to take advantage of international price differences
when a currency is worth less in terms of other currencies; also called weakening
when a country that is not the United States uses the U.S. dollar as its currency
floating exchange rate
a country lets the value of its currency be determined in the exchange rate market
foreign direct investment (FDI)
purchasing more than 10 percent of a firm or starting a new enterprise in another country
foreign exchange market
the market in which people use one currency to buy another currency
hard peg
an exchange rate policy in which the central bank sets a fixed and unchanging value for the exchange rate
using a financial transaction as a protection against risk
international capital flows
flow of financial capital across national boundaries either as portfolio investment or as direct investment
merged currency
when a nation chooses to use the currency of another nation
portfolio investment
an investment in another country that is purely financial and does not involve any management responsibility
purchasing power parity (PPP)
the exchange rate that equalizes the prices of internationally traded goods across countries
soft peg
an exchange rate policy in which the government usually allows the exchange rate to be set by the market, but in some cases, especially if the exchange rate seems to be moving rapidly in one direction, the central bank will intervene
Tobin taxes
see international capital flows