KEY CONCEPTS

Match each of the terms on the left with its definition on the right. Click on the term first and then click on the matching definition. As you match them correctly they will move to the bottom of the activity.

Question

current account
capital account
exchange rate
nominal exchange rate
real exchange rate
purchasing power parity
appreciation (currency)
depreciation (currency)
fixed exchange rate
flexible or floating exchange rate
dollarization
A measure of a currency’s value relative to another, taking into account the price levels of both countries. It is equal to the nominal exchange rate multiplied by the ratio of the price levels of the two countries.
Includes payments for imports and exports of goods and services, incomes flowing into and out of the country, and net transfers of money.
Each government determines its exchange rate, then uses macroeconomic policy to maintain the rate.
When the value of a currency rises relative to other currencies.
The rate at which one currency can be exchanged for another.
The price of one country’s currency for another.
A country’s currency exchange rate is determined in international currency exchange markets.
Describes the decision of a country to adopt another country’s currency (most often the U.S. dollar) as its own official currency.
When the value of a currency falls relative to other currencies.
Summarizes the flow of money into and out of domestic and foreign assets, including investments by foreign companies in domestic plants or subsidiaries, and other foreign holdings of U.S. assets, including mutual funds, stocks, bonds, and deposits in U.S. banks. Also included are U.S. investors’ holdings of foreign financial assets, production facilities, and other assets in foreign countries.
The rate of exchange that allows a specific amount of currency in one country to purchase the same quantity of goods in another country.
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