Key Terms

Balance of Payments

• current account (deficit, surplus)
• merchandise, services
• exports, imports
• capital account (deficit, surplus)
• foreign direct investment, foreign portfolio investment
• debits, credits
• official reserves
• statistical discrepancy
• GDP = C + I + G + (X - M)
• I = S + (T - G) + (M - X)
• international borrower, international lender

Foreign Exchange

• foreign exchange
• exchange rate
• cross rates
• _____ market: interbank, retail, 24 hour, spot, forward
• forex market locations
• vehicle currency
• demand for foreign currency, supply of foreign currency
• floating/flexible system, clean float, dirty/managed float, depreciation, appreciation
• fixed system, adjustable peg, crawling peg, devaluation, revaluation
• Argentine peso currency crisis
• simple and triangular arbitrage

Exchange Rate Determination

• asset market approach/interest rate parity
• twin deficits
• J-curve
• law of one price
• arbitrage
• asset absolute PPP
• relative PPP
• Ph = ePf
• Big Mac Index

Review Questions (odd numbered questions are answered in the textbook)

• Chapter 16: 1, 3, 7, 9, 10
• Chapter 18: 7, 11
• For each of the countries below, calculate the appreciation/depreciation of the foreign currency in terms of the home currency (U.S. dollar) using the theory of relative PPP (key):
   

  Country	Argentina	Brazil	China	Germany	Japan	Mexico	United States
  Inflation Rate (%)	41	8.3	-0.8	1.3	-0.9	6.4	1.6