International Business Chapter 7 Latest Update with Complete Solutions

International Business Chapter 7 Latest Update with Complete Solutions Foreign Exchange Rate The price of one currency in terms of another Purchasing Power Parity A conversion that determines the equivalent amount of goods and services different currencies can purchase. This conversion usually used to capture the differences in costs of living between two countries Balance of Payments A country's international transaction statement, which includes merchandise, trade, service trade, and capital movement. Floating (Flexible) exchange rate policy. The willingness of a government to let demand and supply conditions determine exchange rates. Target exchange rates Specified upper or lower bounds within which an exchange rate is allowed to fluctuate Fixed Rate Policy Setting the exchange rate of a currency relative to other currencies. Bandwagon Effect The effect of investors moving in the same direction at the same time. Capital Flight A phenomenon in which a large number of individuals and companies exchange domestic currencies for a foreign currency. Gold Standard A system in which the value of most major currencies was maintained by fixing their prices in terms of gold. Common Denominator A currency or commodity to which the value of al currencies are pegged. Bretton Woods System A system in which all currencies were peged at a fixed rate to te US dollar. Post Bretton Woods System A system of flexible exchange rate regimes with no official common denominator International Monetary Fund (IMF) An international organization tha was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements Quota The weight a member country carries within the IMF, which determines the amount of its financial contribution (technically known as its "subscription") its capacity to borrow from the IMF and its voting power. Foreign Exchange Market The market where individuals, firms, governments, and banks buy and sell currencies of other countries Spot Transaction The classic single-shot exchange of one currency for another. Forward Transaction A foreign exchange transaction in which participants buy and sell currencies now for future delivery Currency Hedging A transaction that protects traders and investors from exposure to the fluctuations of the spot rate.