Market when the value of the currency is higher than Its D. An increase in the value of one currency relative to other currencies. equilibrium or market clearing rate in the FOREX market. 4. Exchange Rate E. The condition that exists when the value of imports is greater than the The theory that asserts exchange rate reflects the 5. Flexible number of foreign currency units required in a foreign value of exports for a nation. country to buy the same basket of good & services as $1 Exchange F. Theory stating that exchange rates between any two currencies will does in the U.S. Rate System adjust to reflect changes in the relative price levels of the two countries. f. The system in which central bank officials establish a fixed parity (exchange rate) between a currency and 6. Appreciation G. A currency is overvalued if its price in terms of other currencies is above other major currencies by policy. the equilibrium price. g. Under a fixed exchange rate system, official increase 7. Depreciation H. A geographic area in which exchange rates can be fixed or a common in the value of a currency in terms of other currencies by 8. Purchasing currency used without sacrificing domestic economic goals, such as low central bank authorities. Power Parity unemployment. h. A Positive balance (or terms) of trade (ToT) I. A government act that changes the exchange rate by raising the official " The strength of the currency vis-a-vis other (PPP) Theory currencies in the FOREX market. price of a currency. j. The free market for major foreign currencies 9. Fixed Exchange J. The system whereby exchange rates are determined by the forces of k. "Dirt-Floating", a market for FOREX in which the Rate System supply & demand for a currency. currency is allowed to fluctuate within specified margins 10. Overvalued K. A managed flexible exchange rate system, under which nations now & and the Central Bank intervenes when the exchange rate then intervene to adjust their official reserve holdings to moderate major for the currency is out of those margins ("out of bounds") 11. Undervalued When the value of a currency is lower than its swings in exchange rates. equilibrium or market clearing rate in the FOREX market. 12. Devaluation L. The price of one currency in terms of another currency. m. The rate at which one currency is exchange for another 13. Revaluation M. The condition that exists when the value of exports is greater than the in the FOREX market. value of imports for a nation. n. Under a fixed exchange rate system, official reduction 14. Managed Float in the value of a currency in terms of other currencies by N. The market in which currencies of different countries are exchanged. central bank authorities. 15. Optimal O. A currency is undervalued if its price in terms of other currencies is o. A system whereby the free market determine the rate Currency Area below the equilibrium price. at which one currency is exchanged for another. 4
