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itself has little or no inherent value
- Its value rests on trust |
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| a system in international monetary relations, prominent for a century before the 1970s, in which the value of national currencies was pegged to the value of gold or other precious metals |
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| the rate at which one state’s currency can be exchanged for the currency of another state. Since 1973, the international monetary system has depended mainly on flexible (or floating) rather than fixed exchange rates |
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| the guarantee that the holder of a particular currency can exchange it for another currency. Some states’ currencies are nonconvertible |
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| an extremely rapid, uncontrolled rise in prices, such as occurred in Germany in the 1920s and some third world countries more recently |
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| money that can be readily converted to leading world currencies |
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| hard-currency stockpiles kept by states |
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| the official rates of exchange for currencies set by governments; not a dominant mechanism in the international monetary system since 1973 |
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| the rates determined by global currency markets in which private investors and governments alike buy and sell currencies |
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| a system of occasional multinational government interventions in currency markets to manage otherwise free-floating currency rates |
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| Exchange Rate Mechanism (ERM) |
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| a system that establishes nearly fixed exchange rates among European currencies while letting them all float freely relative to the rest of the world |
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| a unilateral move to reduce the value of a currency by changing a fixed or official exchange rate |
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| an institution common in industrialized countries whose major tasks are to maintain the value of the state’s currency and to control inflation |
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| the interest rate charged by governments when they lend money to private banks. The discount rate is set by countries’ central banks |
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| a post-World War II arrangement for managing the world economy, established at a meeting in Bretton Woods, New Hampshire, in 1944. Its main institutional components are the World bank and the International Monetary Fund (IMF) |
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| formally the International Bank for Reconstruction and Development (IBRD), it was established in 1944 as a source of loans to help reconstruct the European economies. Later, the main borrowers were third world countries and, in the 1990s, Eastern European ones |
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| International Monetary Fund (IMF) |
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| an intergovernmental organization (IGO) that coordinates international currency exchange, the balance of international payments, and national accounts. Along with the World Bank, it is a pillar of the international financial system |
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| Special Drawing Right (SDR) |
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| a world currency created by the International Monetary Fund (IMF) to replace gold as a world standard. Valued by a “basket” of national currencies, the SDR has been called “paper gold” |
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| a summary of all the flows of money in and out of a country. It includes three types of international transactions: the current account (including the merchandise trade balance), flows of capital, and changes in reserves |
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| Foreign direct investment |
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| the acquisition by residents of one country of control over a new or existing business in another country. Also called direct foreign investment |
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| the principles articulated by British economist John Maynard Keynes, used successfully in the Great Depression of the 1930s, including the view that governments should sometimes use deficit spending to stimulate economic growth |
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| a government’s decisions about spending and taxation, and one of the two major tools of macroeconomic policy making (the other being monetary policy) |
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| a government’s decisions about printing and circulating money, and one of the two major tools of macroeconomic policy making (the other being fiscal policy) |
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| the amount a government owes in debt as a result of deficit spending |
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| Multinational corporations (MNCs) |
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| companies based in one state with affiliated branches or subsidiaries operating in other states |
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| the state where a multinational corporation (MNC) has its headquarters |
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