International Trade & Finance

The balance of payments is a record of all economic transactions between a country and the rest of the world over a period.

The capital and financial account records international purchases and sales of assets such as stocks, bonds, and real estate.

Currency appreciation is an increase in the value of a currency relative to another in the foreign exchange market.

Currency depreciation is a decrease in the value of a currency relative to another in the foreign exchange market.

The current account records a country's trade in goods and services plus net income and net transfers with the rest of the world.

An exchange rate is the price of one country's currency expressed in terms of another currency.

A fixed exchange rate is set and maintained by a government or central bank at a specific value against another currency.

A floating exchange rate is determined freely by market supply and demand without government intervention.

Free trade is international trade conducted without government barriers such as tariffs, quotas, or subsidies.

An import quota is a legal limit on the quantity of a good that can be imported during a period.

Net exports are the value of a country's exports minus its imports, a key component of aggregate demand.

A tariff is a tax on imported goods that raises their price and protects domestic producers from foreign competition.

A trade deficit occurs when a country's imports exceed its exports, making net exports negative.

A trade surplus occurs when a country's exports exceed its imports, making net exports positive.

The J-curve effect is the pattern where a currency depreciation first worsens the trade balance before improving it as trade volumes adjust over time.

The Marshall-Lerner condition states that a currency depreciation improves the trade balance only if the combined price elasticities of export and import demand exceed 1.

The twin deficits hypothesis holds that a larger government budget deficit tends to widen the current-account (trade) deficit through interest rates and the exchange rate.

The effective rate of protection measures how much a tariff structure raises an industry's value added per unit, accounting for tariffs on both outputs and imported inputs.

The infant industry argument holds that new domestic industries deserve temporary tariff or quota protection until they grow large enough to compete with established foreign rivals.

An optimum currency area is a region where the gains from sharing one currency outweigh the costs of giving up independent monetary policy and exchange-rate adjustment.

Devaluation is a deliberate official cut in a currency's fixed exchange rate, decided by the government or central bank rather than by market trading.

Capital flight is a large, rapid outflow of money from a country as savers and investors move funds abroad to escape devaluation, default, or seizure.

Hot money is short-term capital that moves quickly between countries chasing higher interest rates or currency gains, and can leave just as fast.

A crawling peg is an exchange rate regime in which the official rate is fixed but moved in small, frequent steps, usually to track an inflation differential.

A carry trade borrows in a low interest rate currency and invests in a higher-yielding one, earning the interest gap if the exchange rate holds.

The balance of trade is a country's exports minus its imports over a period, a surplus when exports are larger and a deficit when imports are larger.

Sterilized intervention is a central bank foreign currency trade offset by an opposite open market operation, leaving the domestic monetary base unchanged.