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Econ 15 Vocab


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Freely Floating Exchange Rate Systems
The flexible exchange rate system under which the exchange rate is always determined by the forces of demand and supply without any government intervention in foreign exchange markets.
Optimum currency area or bloc
Refers to a group of nations whose national currencies are linked through permanently fixed exchange rates and the conditions that would make such an area optimum.
European Monetary System
The organization formed by the members of the EU in 1979 based on the creation of the European Currency Unit (ECU) of account, limited exchange rate flexibility among members and formation fo the European Monetary Fund (EMF).
European Currency Unit (ECU)
the unit of account defined by the EMU based ont he weighted average of the currencies of the EU members.
European Monetary Cooperation Fund (EMCF)
The institution of the EMS that provides short and medium term balance of payment assistance to member nations.
European Monetary Institute (EMI)
The forerunner of the European Central Bank that was set up in Jan. 1994 by the Maastrich Treaty of Dec. 1991 to further centralize members' macroeconomic policies and reduce exchange rate fluctuation margins.
Maastricht Treaty
The treaty that called for the creation of the European Monetary Institute as a forerunner of the European Central Bank and monetary union by the EU by 1997 or 99. Approved at a meeting the Dutch city of Maastricht.
Stability and Growth Pact (SGP)
The pact that requires members of the EMU to keep their budget deficits not exceeding 3 percent of their GDP
European Monetary Union (EMU)
The 12 members of the European Union that have adopted the euro as their common currency and have established the European Central Bank to conduct their common monetary policy.
The commmon currency adopted at the beginning of 1999 by 11 of the 15 member countries of the European Union. Only a unit of account (not a physical currency) until 2002.
European Central Bank (ECB)
The institution similar to the Federal Reserve System in the United States that would control the money supply and issue the single currency of the European Union. ECB is independent of Political influences.
Currency Board Arrangements (CBAs)
The exchange rate arrangement whereby the nation rigidly fixes the exchange rate and its central bank loses its ability to conduct an independent monetary policy by allowing the nation's supply to increase or decrease only in response to balance-of-payments surpluses or deficits.
The situation whereby a nation adopts another nation's currency as its legal tender.
Adjustable peg system
The Fixed Exchange Rate system under which exchange rates or par values are periodically changed to correct balance of payment disequilibria.
Crawling Peg System
The Fixed Exchange Rate system under which par values or exchange rates are change by very small pre-announced amounts at frequent and clearly specified intervals until the equilibrium exchange rate is reached.
Managed Floating Exchange rate system
The policy of intervention in foreign exchange markets by monetary authorities to smooth out short run fluctiations without attempting to affect the long run trend in exchange rates.

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