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The monetary system in the International Arena - Coggle Diagram
The monetary system in the International Arena
Balance of Payments
summary statement of all transactions that take place between a country and the rest of the world during a given period of time (usually a year)
Debit (-) which is anything that the country pays for and credit (+) anything that the country is paid for.
Current and Capital accounts
Current accounts is all transactions involving goods and services. some examples are goods, services (tourism, banking, insurance, brokerage services, transport), transfers, receipts of interest, profit and divi- dends earned by investments abroad
The capital account records all transactions involving short-term and long-term assets. Some examples are land and build- ings together with borrowing and lending.
Disequilibrium on the balance of payments
Autonomous transactions are independent of the balance of payments in the sense that they are affected by factors outside the balance of payments state- ment. These include exports, imports, transfers, public transactions, and net capital movements.
Accounts surplus and accounts deficit. These must balance each other out.
transactions occurring in order to compensate for dif- ferences between payments and receipts arising from a country’s autonomous transactions are called accommodating (offsetting) transactions.
The foreign exchange market
The exchange rate is the price of one nation’s currency in terms of another’s.
Currencies can appreciate or deppreciate
Currencies can fall or rise in relation to other currencies
Using the percentage change formula we can calculate the change in the value of
Exchange Rates
A fixed exchange rate is pegged at a certain level by the national mon- etary authorities and can only be changed by a government decision.
Under a flexible or freely floating exchange rate system the monetary author- ities do not intervene in the foreign exchange market. The price of a currency is allowed to rise or fall according to prevailing demand and supply condi- tions.
a managed float is partially market-determined and partially government-determined. Authorities may intervene if something is threatening macroeconomic policy