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Exchange Rates and Net Exports definitions

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Terms in this set (13)

  • Nominal Exchange Rate
    Market value at which one currency can be traded for another, reflecting the current price without adjusting for inflation.
  • Appreciation
    Increase in a currency's value, allowing it to purchase more of a foreign currency and making foreign goods relatively cheaper.
  • Depreciation
    Decrease in a currency's value, resulting in less purchasing power abroad and making domestic goods more attractive to foreign buyers.
  • Imports
    Goods or services purchased from abroad, which become more affordable when the domestic currency strengthens.
  • Exports
    Goods or services sold to other countries, which become more competitive when the domestic currency weakens.
  • Net Exports
    Difference between a country's exports and imports, indicating whether it sells more abroad than it buys.
  • Trade Deficit
    Situation where a country's imports exceed its exports, often resulting from a stronger domestic currency.
  • Trade Surplus
    Condition where a country's exports surpass its imports, typically occurring when the domestic currency is weaker.
  • Purchasing Power
    Ability of a currency to buy goods and services, which rises with appreciation and falls with depreciation.
  • Currency Market
    Marketplace where exchange rates fluctuate daily based on supply and demand for different currencies.
  • Relative Value
    Comparison of one currency's strength to another, determining which currency can buy more or less of the other.
  • Foreign Currency
    Monetary unit used outside the domestic country, exchanged based on prevailing market rates.
  • Domestic Currency
    Official money issued by a country, used as the basis for comparing exchange rates with other currencies.