INTERNATIONAL FINANCE THEORY AND POLICY FINAL PAPER FULL QUESTIONS AND CORRECT ANSWERS PREMIUM STUDY SHEET

INTERNATIONAL FINANCE THEORY AND
POLICY FINAL PAPER FULL QUESTIONS
AND CORRECT ANSWERS PREMIUM STUDY
SHEET

●● Depreciation
Answer: currency loses value relative to another → E rises on graph →
trade balance improves (exports cheaper, imports more expensive)


●● Appreciation
Answer: currency gains value relative to another → E falls on graph →
trade balance worsens (exports more expensive, imports cheaper)


●● Trade balance and exchange rate
Answer: inverse relationship — depreciation improves TB, appreciation
worsens TB


●● Direct quote
Answer: home/foreign ($/€) — how many dollars per euro


●● Indirect quote
Answer: foreign/home (€/$) — how many euros per dollar

,●● Basic conversion
Answer: 3,800,000 yen × 0.007 $/yen = $26,600


●● Stock variable
Answer: measured at one point in time (e.g. NFA, money supply, how
much money you have right now)


●● Flow variable
Answer: measured over a time interval (e.g. GDP, CA, income per year)


●● Nominal variable
Answer: measured in currency terms — how much your money grows
by investment (e.g. R)


●● Real variable
Answer: measured in terms of tangible goods — shows changes in
purchasing power


●● GDP
Answer: market value of final goods and services produced within a
nation during a given time period

, ●● GNP
Answer: market value of final goods and services produced by domestic
factors of production in a given time period


●● Fisher equation
Answer: R = r + π (nominal interest rate = real interest rate + inflation)


●● National income identity
Answer: Y = C + I + G + (EX − IM)


●● National saving
Answer: (Y − C − T) + (T − G) = I + CA → Sp + Sg = Sn → Sn = I +
CA


●● CA > 0
Answer: surplus → Y > C + I + G + NX → SN > I → country lends to
world


●● CA < 0
Answer: deficit → Y < C + I + G + NX → SN < I → country borrows
from world


●● Trade balance