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Chapter 4

1. What is the Great recession?

Financial markets crash in 1973
2. What was the rationale for holding dollars?
3. What is the balance of payments?
Transaction between residents of a country and the world
4. What does the balance of payments shows?
How well the economy and government policy is
5. What are the two components that the BOP is split into?
Current account & Financial account
6. What are the four subaccounts of the current account?
Trade, services, current account and transfer of balance
7. What indication does the trade balance provide?
8. What kind of economy is USA according to the BOP?
Services economy
9. What do you call a country with a current account surplus?
10.What countries are capital surplus countries?
11.What do countries with current account surpluses usually do with countries
with current account deficits?
12.What are the three subaccounts that the financial accounts consist of?
U.S. assets abroad
13.What does FDI encompass?
The purchases of fixed assets (such as factories and equipment) abroad used
in the manufacture and sales of goods and services abroad
14.What are examples of foreign direct investments?
15.What is the forex?
Foreign Exchange Market.A decentralized global market where all the
world's currencies trade.
16.How much currencies are traded daily?
17.Where are the largest forex markets?
New York, London,tokyo
18.Which market is the largest?
19.What is the function of the foreign exchange market?
A global, decentralized market for the trading of currencies.
20.What is an exchange rate?
the domestic currency and a foreign currency, and can be quoted either
directly or indirectly.
21.What are the 3 exchange rate systems?
Independent floating exchange rate system
Managed floating exchange rate system
Fixed exchange rate system
22.Explain the 3 exchange rate systems?
A floating exchange rate or fluctuating exchange rate is a type of exchange
rate regime wherein a currency's value is allowed to freely fluctuate according
to the foreign exchange market.
A fixed exchange-rate system (also known as pegged exchange rate system)
is a currency system in which governments try to maintain their currency value
constant against a specific currency or gold
23.What are the 3 components of the forex market?
Spot market & Forward market & Futures market
24.What are bid and ask prices?
A bid is the price in one currency at which a dealer will buy another
An ask is the price at which a dealer will sell the other currency
25.What does the bid and ask price represents?
26.What is the direct quote and indirect quote between Taiwan dollar and US
27.What does it mean a currency appreciate or depreciate?
28.What is the forward market?
A forward market is an over-the-counter marketplace that sets the price of a
financial instrument or asset for future delivery.
29.Explain the terms discount, premium and hedge?
Discount:The selling of a currency at a spot rate that is less than the forward
Premium:The selling of a currency at a spot rate that is more than the
forward rate
Hedge:Insurance that reduces future risk
30.What is the result of excess supplies of money?
31.What is inflation?
Inflation is a sustained increase in the general price level of goods and
services in an economy over a period of time
32.What is the Bretton Woods Agreement?
The 1944 decision to establish a global currency system with the U.S. dollar
pegged at a fixed rate of exchange to gold, and the currencies of 43 other
countries fixed to the dollar
33.When was the Bretton Woods Agreement established and when was it
Established in 1944
34.What is the SDR?
Special drawing right (SDR)
A basket of currencies (dollars, euros, pounds, and yen) created by the IMF
for use as a benchmark to value the currencies of different countries
35.What is a clean float currency and what is a dirty float currency?
Clean float currency Monetary system with minimal government
intervention; largely market determined
Dirty float currency Monetary system with varying degrees of government
intervention to maintain a range of acceptable values against other currencies
36.What are the three most important currencies in the world?
Euro、 dollars、yen
37.What are hard currencies and what are soft currencies?
Hard currencies: Leading world currencies of developed industrialized
countries, including the dollar, euro, yen, and pound
Soft currencies: Emerging market countries’ currencies that are less stable in
value than hard currencies and are sometimes pegged to hard currency values