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Econ 16 vocab


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Internation monetary system
The rules, customs, instruments, facilities and organizations for effecting international payments.
The process by which balance-of-payments desequillibria are corrected.
The amount of international reserve assets available to nations to settle temporary balance of payments desequilibria.
The knowledge that the balance of payments adjustment mechanism is working adequately and that international reserves will retain their absolute and relative values.
Bretton Woods System
The gold exchange standard that operated from the end of World War II until 1971
Intervention currency
A convertible national currency used by nations monetary authorities to intervene in foreign exchange markets in order to keep the exchange rate from moving outside the allowed or desired range of fluctuation.
International Monetary Fund (IMF)
The international institution created under the Bretton Woods system for the purposes of 1. overseeing that nations followed a set of agreed upon rules of conduct in international trade and finance and 2. providing borrowing facilities for nations in temporary balance of payments difficulties.
Fundamental disequilibrium
large and persistent balance of payments deficits or surpluses. Allowed a country to change par value of currency.
Currencty Convertibility
The ability to exchange one national currency for another without any restriction or limitation.
International Bank for Reconstruction and Development (World Bank)
The international institution established after WWII to provide long run development assistance to developing nations.
International Development Association
The affiliate of the International Bank for Reconstruction and Development set up in 1960 to make loans at subsidized rates to poorer developing nations.
International Fincance Corporation (IFC)
The affiliate of the World bank for Reconstruction and development set up in 1956 to stimulate private investments in developing nations from indigenous and foreign sources.
Gold tranche
the 25 percent of a nation's quota in the IMF that the nation was originally required to pay in gold and could then borrow from the Fund almost automatically.
Credit tranche
The amounts that a member nation could borrow from the IMF, subject to conditions, over and above the gold tranche.
Net IMF position
The size of a nations quota in the IMF minus the Fund's holdings of the nations currency. (Gold tranche - amount of borrowing)
General Arrangements to Borrow (GAB)
The arrangements under which the IMF negotiated to borrow from the "group of ten" (most important industrial nations) and Switzerland to augment its resources if needed to help nations with balance of payment difficulties.
Standby arrangements
The arrangements under which member nations negotiate with the IMF for advance approval for future borrowings from the Fund so they will be immediately available when needed.
Swap arrangements
The arrangements under which national central banks negotiate to exchange each other's currency to be used to intervene in foreign exchange markets to combat international hot money flows.
Special Drawing Rights (SDR's)
International reserves created by the IMF to supplement other international reserves and distributed to member nations according to their quota's in the Fund. Can only be used in dealings among central banks to settle balance of payment deficits/surpluses, not in private dealings. originally 1 SDR= $1 US. 1974, SDR value tied to basket of currencies. 2003 SDR worth $1.43. Created in response to persistent US balance of payment deficits that undermined the confidence of the dollar.
Dollar shortage
The inability of war-torn nations during the late 1940's and early 50's to accumulate substantial dollar reserves.
The benefit accruing to a nation from issuing the currency or when its currency is used as an international currency and reserve.
Smithsonian Agreement
The agreement reached in December 1971 in Washington under which the dollar was devalued by 9 percent by in creasing the dollar price of gold from $35 to $38 an ounce. Other strong currencies were revalued by various amounts with respect to the dollar, the dollar convertibility into gold remained suspended, and exchange rates were allowed to fluctuate by 2.25% on either side of the new par values.
Dollar standard
The international monetary system that emerged from the Smithsonian agreement in December 1971 under which the US Dollar remained an international currency and reserve without any gold backing.
Dollar glut
the excess supply of dollars in the hands of foreign monetary authorities that developed during the late 50's and early 60's.
Jamaica accords
The agreements reached in January 1976 and ratified in April 1978 that recognized the managed float and abolished the official price of Gold.
Benign neglect
The policy of nonintervention in foreign exchange markets followed by the United States from 1973-77 and 81-85.
First Credit Tranche
The 25% quota in the IMF that the nation is required to pay in SDR's or in the currencies of other members selected by the Fund and could then borrow from the fund almost automatically.
New Arrangement to Borrow (NAB)
The arrangement negotiated by the International Monetary Fund in 1997 under which 25 countries and institutions agreed to led up to SDR34 billion ($47 billion) to supplement the General Arrangements to Borrow (GAB) for a period of five years (subject to renewal).
IMF conditionality
The conditions imposed by the IMF on membe3rs' borrowing from the Fund.
Collapse of Mexican Peso - Causes
Immediate cause - sharp increase in US interest rates during 1994, which reversed the large US capital flow to Mexico. This was Aggravated by the political crises triggered by the armed rebellion in Chiapas in Jan. 1994 and the murder of two high political officials (a pres. candidate)later in 94. Mexico started issuing shortterm securites, but investors still pulled out fearful Mexico wouldn't fulfill loan obligations. Mexico devalued peso 15% from 3.5 to 4 pesos to the dollar on Dec. 20, forced to let it float, the Peso depreciated to 7 pesos/dollar by March 95 and hit 8 pesos/dollar in December 95.
Collapse of Mexican Peso - Solutions
The US organized an international support package of $48 billion through the IMF in 95 which succeeded in calming the financial markets. Mexico dipped into deep recession until 96.
Maastricht treaty
single currency provisions eventually demanding that majority of EC countries meet certain standards 1. A country can't have inflation over 1.5% that of the lowest inflating country. 2. A countries long term interest rates can't exceed those of the best performing countries by more than 2% 3. A country's currency shall have been devalued for at least the last two years prior to the EMU. 4. A country's budget deficit may not exceed 3% of GDP and government debt may not exceed 60% of GDP. European Central Bank responsible for monetary policy and financial system stability. Main aim of monetary policy will be to mainatain price stability.

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