The goods become more or less expensive relative to another country's goods.
A government can decide to restrict or allow capital mobility.
The institutional foundations of economic performance include the quality of governance that prevails in a country.
Economists study regimes and institutions in addition to policies.
Autos and clothing.
Capital flows are the movement of money for the purpose of investment, trade, or business production across borders.
Large-scale economic interactions.
The country is a Debtor Nation.
Exchange rates determine the value of one currency in terms of another and are crucial for international trade and investment.
Globalization of finance allows countries to borrow and lend across borders, impacting national debts and deficits.
A currency experiences a sudden and pronounced loss of value against another currency following a relatively stable period.
The Balance of Payments.
Better-quality institutions are correlated with higher levels of income per capita.
Tourism and insurance.
The potential risks include financial volatility, exposure to global economic shocks, and the possibility of capital flight.
Net worth rises.
When a country is unable to pay off its debt.
Fixed exchange rates and floating exchange rates.
The balance of payments is a record of all economic transactions between residents of a country and the rest of the world, indicating economic stability.
A fixed exchange rate system maintains currency value through government or central bank interventions, such as buying or selling currency to maintain the pegged rate.
A government can choose between a fixed exchange rate regime and a floating exchange rate regime.
Government actions can influence economic decisions about exchange rates, macroeconomic policies, debt repayment, etc.
Institutions are the overall legal, political, cultural, and social structures that influence economic and political actions.
Total wealth or net worth = assets – liabilities.
The country is a Creditor Nation.
Economic policy choices are made in the context of multiple currencies and financial integration, but not always very well.
Government institutions can influence exchange rates through monetary policy, foreign exchange interventions, and regulations.
A fixed exchange rate is a regime where the value of a currency is tied to another currency, a basket of currencies, or a commodity like gold.
Disadvantages of a floating exchange rate include higher exchange rate volatility, potential for speculative attacks, and uncertainty for international trade and investment.
By changing international relative prices of goods and assets.
Changes in exchange rates can affect wealth, impacting firms, governments, and individuals.
Because countries have different currencies and the exchange rate is the price of foreign currency.
Financial openness refers to the extent to which a country allows capital flows and financial transactions with other countries.
Large-scale economic interactions between interdependent economies.
Net worth falls.
External wealth refers to a country's net international investment position, classifying countries as debtors or creditors.
Advantages of a fixed exchange rate include reduced exchange rate risk, greater predictability for international trade, and potential control over inflation.
Yes, a country can switch between fixed and floating exchange rate systems depending on its economic goals and conditions.
Most countries today lend to and borrow from each other.
They are important indicators of economic performance.
Better-quality institutions are correlated with lower levels of income volatility.
Equities and bonds.
Benefits include increased investment, access to global financial markets, and potential for higher economic growth.
Interdependent economies.
The world has many currencies, not just one.
Government policies, including fiscal and monetary measures, can influence economic growth, stability, and overall performance.
Disadvantages of a fixed exchange rate include the need for large reserves of foreign currency, reduced monetary policy flexibility, and potential for economic imbalances.
They can influence the environment for economic prosperity and stability, or poverty and instability.
They impact the relative prices of home and foreign goods, services, and assets.
Financial openness can lead to increased investment, economic growth, and access to global financial markets, but it can also expose the country to financial volatility and external economic shocks.
Exchange rates, prices, interest rates, income, wealth, and current account.
External wealth = foreign assets – foreign liabilities.
Countries are financially integrated, not isolated.
Exchange rate fluctuations can affect import and export prices, inflation, and overall economic stability.
High-quality governance ensures effective policy implementation, reduces corruption, and promotes economic development.
Advantages of a floating exchange rate include automatic adjustment of trade imbalances, greater monetary policy flexibility, and no need for large reserves of foreign currency.
A floating exchange rate is a regime where the value of a currency is determined by market forces without direct government or central bank intervention.
Market forces such as supply and demand, interest rates, and economic indicators influence a floating exchange rate.
Central banks play a crucial role in a fixed exchange rate system by intervening in the foreign exchange market to maintain the pegged rate.
