Description
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Term
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The process whereby firms in one country allocate part or all of their production to firms in other countries, hired by them but not owned
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Outsourcing
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The relationship between interest rates and demand for currency, as investors will wish to buy financial assets in that country to gain a good return, ceteris paribus
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Direct
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Countries defined by the World Bank as those with an annual per capita GNI between $1,026 and $12,475
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Middle Income Countries (MICs)
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That which inequality in is caused by inheritance, marriage (concentrates said thing), saving (easier and with better returns for those with more of said thing), skills/enterprise, and chance (lottery)
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Wealth
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An account identifying transactions in financial assets between the residents of a country and the rest of the world, such as investment flows and central government transactions in foreign exchange reserves
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Financial Account of the Balance of Payments
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A ratio comparing the export prices paid by a country with the price it has to pay for its imports, being either positive or negative, calculated as 100×(average price of exports÷average price of imports)
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Terms of Trade
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That the potential benefits of which are that reduced transaction costs and exchange rate uncertainty can increase monetary efficiency, thereby encouraging trade between members leading to exploitation of comparative advantage and economies of scale
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Single Currency
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That type of exchange rate which does not automatically lead to a current account balance due to capital movements, and government unwillingness to allow sharp falls in the exchange rate as it can contribute to inflation
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Floating Exchange Rates
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That which when high may reduce inflationary pressure due to the cheap import prices and high export prices it will allow, increasing competition and helping to maintain low prices
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Exchange Rate
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The collective name for the income and current transfers components of the current account
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Balance of Trade
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Description
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Term
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They which benefit from international/external trade due to access to larger markets allowing for increased production and economies of scale, technology transfer, easier and cheaper access to raw materials, and the potential for greater revenue and profit and thus investment
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Firms
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A decrease in the value of a currency/the exchange rate, such as due to inflation
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Depreciation
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That the disadvantages of which are the there can be wild fluctuations in the exchange rate, causing uncertainty and inflationary pressure, potentially reducing trade and foreign direct investment (FDI), while fluctuations can push up wages as workers will not agree to pay cuts just because the exchange rate rises and thus import prices fall
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Floating Exchange Rate
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The ability to produce a product more cost efficiently than a competitor such as with less labour costs
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Absolute advantage
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That the advantages of which are that is is in theory if not in practice, self correcting of the current account balance as the rise and fall in the value of the currency will see corresponding changes in exports and imports (demand and supply) restoring the balance
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Floating Exchange Rate
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A group of countries that agree to trade without barriers between themselves, and with a common tariff barrier against the world such as the East African Community (EAC) or Mercosur
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Customs Union
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A condition that states that for devaluation to successfully improve the trade imbalance, the combined price elasticities of demand for exports and imports must exceed one, i.e. be relatively elastic, as must the elasticity of supply of exports
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Marshall-Lerner Condition
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The economic union formed in stages from 1990 which introduced a European Central Bank and single currency to succeed the exchange rate mechanism (ERM) and European Monetary System (EMS)
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Economic and Monetary Union of the European Union (EMU)
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A measure of output per worker or per hour worked, useful for comparing the relative costs of production between countries
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Labour Productivity
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The largest component of the current account
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Trade in Goods
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