Podcast
Questions and Answers
What is the definition of money according to the Oxford Dictionary?
What is the definition of money according to the Oxford Dictionary?
- Any generally accepted medium of exchange (correct)
- A physical object with intrinsic value
- A digital currency with no traditional value
- Only coins and banknotes
What type of money is backed by neither gold nor another commodity?
What type of money is backed by neither gold nor another commodity?
- Digital currency
- Commodity money
- Token money
- Fiat money (correct)
Which form of currency was primarily associated with the gold standard?
Which form of currency was primarily associated with the gold standard?
- Digital currency
- Fiat money
- Commodity money
- Token money (correct)
What was the primary economic effect of the influx of silver from Potosi?
What was the primary economic effect of the influx of silver from Potosi?
What impact did Spanish silver have on trade with Asia?
What impact did Spanish silver have on trade with Asia?
How did the people of Potosi economically benefit from the wealth generated by silver mining?
How did the people of Potosi economically benefit from the wealth generated by silver mining?
Why was Potosi significant in the context of capitalism?
Why was Potosi significant in the context of capitalism?
What facilitated the development of capitalism in Europe?
What facilitated the development of capitalism in Europe?
What was the main purpose of the creation of the Bank of England in 1694?
What was the main purpose of the creation of the Bank of England in 1694?
What does the Federal Reserve in the United States aim to primarily achieve?
What does the Federal Reserve in the United States aim to primarily achieve?
Which central banking system is known for being a lender of last resort for banks?
Which central banking system is known for being a lender of last resort for banks?
What major event prompted the establishment of the Bank of Canada in 1935?
What major event prompted the establishment of the Bank of Canada in 1935?
What was a significant change in the control of the Bank of Canada in 1938?
What was a significant change in the control of the Bank of Canada in 1938?
Which bank was the first Canadian bank and established in 1817?
Which bank was the first Canadian bank and established in 1817?
What was a direct result of the 1923 failure of the Home Bank in Toronto?
What was a direct result of the 1923 failure of the Home Bank in Toronto?
What approach to banking characterized British North America compared to the United States?
What approach to banking characterized British North America compared to the United States?
What change did the Bank of Canada allow in the 1967 Bank Act revision?
What change did the Bank of Canada allow in the 1967 Bank Act revision?
What issue did the 1907 banking crisis in the US largely stem from?
What issue did the 1907 banking crisis in the US largely stem from?
What role did JP Morgan play after the 1907 banking crisis?
What role did JP Morgan play after the 1907 banking crisis?
How did Canadian chartered banks primarily operate?
How did Canadian chartered banks primarily operate?
Which of the following institutions was created in response to the need for a centralized monetary system in Canada?
Which of the following institutions was created in response to the need for a centralized monetary system in Canada?
What is one major reason for the establishment of central banks like the Federal Reserve?
What is one major reason for the establishment of central banks like the Federal Reserve?
What primarily determines the value of a currency in a free floating exchange rate system?
What primarily determines the value of a currency in a free floating exchange rate system?
In a managed floating exchange rate system, what can the central bank do to influence the currency's value?
In a managed floating exchange rate system, what can the central bank do to influence the currency's value?
What is a key characteristic of a fully fixed exchange rate system?
What is a key characteristic of a fully fixed exchange rate system?
Which of the following is an example of a currency system that allows only limited fluctuations within a specific range?
Which of the following is an example of a currency system that allows only limited fluctuations within a specific range?
What does a central bank aim to achieve by managing the depreciation of its currency?
What does a central bank aim to achieve by managing the depreciation of its currency?
What is the role of a currency board system?
What is the role of a currency board system?
Which of these is NOT a feature of a managed floating exchange rate system?
Which of these is NOT a feature of a managed floating exchange rate system?
Which currency system allows the bank to shift its monetary policy without targeting the currency's external value?
Which currency system allows the bank to shift its monetary policy without targeting the currency's external value?
What is a possible consequence of an adjustable peg system when realignment is needed?
What is a possible consequence of an adjustable peg system when realignment is needed?
How can a central bank support its currency in a managed floating exchange rate?
How can a central bank support its currency in a managed floating exchange rate?
Capital controls are primarily used to:
Capital controls are primarily used to:
What is a defining issue for economies with fixed exchange rates?
What is a defining issue for economies with fixed exchange rates?
What happens when a country's central bank chooses to sell its currency in the market?
What happens when a country's central bank chooses to sell its currency in the market?
In a managed floating exchange rate, how often does the central bank intervene?
In a managed floating exchange rate, how often does the central bank intervene?
What was a significant change in Canada's banking system during 1967-1968?
What was a significant change in Canada's banking system during 1967-1968?
Why did European countries realize the need for monetary cooperation in the mid-1960s?
Why did European countries realize the need for monetary cooperation in the mid-1960s?
What was the name of the virtual currency introduced as part of the European Monetary System?
What was the name of the virtual currency introduced as part of the European Monetary System?
Which country had an opt-out agreement from adopting the euro?
Which country had an opt-out agreement from adopting the euro?
What was the main focus of the Werner report regarding monetary integration?
What was the main focus of the Werner report regarding monetary integration?
What mechanism was introduced in 1972 to stabilize European currencies?
What mechanism was introduced in 1972 to stabilize European currencies?
What was the purpose of the Economic and Monetary Union as proposed by Jacques Delors in 1989?
What was the purpose of the Economic and Monetary Union as proposed by Jacques Delors in 1989?
Which of the following conditions was NOT a part of Pierre Werner's plan for monetary union?
Which of the following conditions was NOT a part of Pierre Werner's plan for monetary union?
What did the concept of 'differentiated integration' refer to in the context of the euro?
What did the concept of 'differentiated integration' refer to in the context of the euro?
Which two groups of economies had differing views on monetary integration during the discussions on the euro?
Which two groups of economies had differing views on monetary integration during the discussions on the euro?
What economic event was a factor in the eventual failure of the currency snake in the early 1970s?
What economic event was a factor in the eventual failure of the currency snake in the early 1970s?
How did members of the European community come to terms with monetary cooperation during economic crises?
How did members of the European community come to terms with monetary cooperation during economic crises?
What was the stated goal for stage three of the Economic and Monetary Union?
What was the stated goal for stage three of the Economic and Monetary Union?
What did the volatility of exchange rates during the European economic crisis signify for the internal market?
What did the volatility of exchange rates during the European economic crisis signify for the internal market?
What significant change in international economic policymaking has influenced the euro's potential rise?
What significant change in international economic policymaking has influenced the euro's potential rise?
What principle underlies the functioning of both traditional and new forms of currency, like Bitcoin?
What principle underlies the functioning of both traditional and new forms of currency, like Bitcoin?
How did the pandemic positively impact the euro's credibility as a global currency?
How did the pandemic positively impact the euro's credibility as a global currency?
What is a significant barrier to the euro's international usage?
What is a significant barrier to the euro's international usage?
What is one of the characteristics of the newly created NGEU bonds?
What is one of the characteristics of the newly created NGEU bonds?
What do critics argue about America's use of the dollar in international relations?
What do critics argue about America's use of the dollar in international relations?
What remains a challenge for the euro despite its potential growth?
What remains a challenge for the euro despite its potential growth?
Which aspect of EU dynamics is crucial for enhancing the euro's role internationally?
Which aspect of EU dynamics is crucial for enhancing the euro's role internationally?
What traditional role does the euro play for international investors?
What traditional role does the euro play for international investors?
What does the term 'exorbitant privilege' refer to?
What does the term 'exorbitant privilege' refer to?
How does the eurozone plan to achieve 'strategic autonomy'?
How does the eurozone plan to achieve 'strategic autonomy'?
What phenomenon worried German monetary policymakers during the euro's initial phases?
What phenomenon worried German monetary policymakers during the euro's initial phases?
What role do large U.S. banks play in relation to the dollar?
What role do large U.S. banks play in relation to the dollar?
What potential future scenario is mentioned regarding the global reserve currency status?
What potential future scenario is mentioned regarding the global reserve currency status?
What does the ECB's traditional stance on an international euro reflect?
What does the ECB's traditional stance on an international euro reflect?
What is primarily responsible for the global dominance of the dollar?
What is primarily responsible for the global dominance of the dollar?
What percentage of all currency trades involve the dollar?
What percentage of all currency trades involve the dollar?
What happens to global trade when the dollar rises by 1 percent?
What happens to global trade when the dollar rises by 1 percent?
What impact does a surging dollar have on countries with significant dollar debts?
What impact does a surging dollar have on countries with significant dollar debts?
What has contributed to the debt distress among low-income borrowers?
What has contributed to the debt distress among low-income borrowers?
Which of the following accurately describes the effect of Federal Reserve rate increases on emerging markets?
Which of the following accurately describes the effect of Federal Reserve rate increases on emerging markets?
What category of countries is most likely to face acute economic strain due to rising dollar strength?
What category of countries is most likely to face acute economic strain due to rising dollar strength?
How has the global financial system adapted since the 1990s regarding reliance on the dollar?
How has the global financial system adapted since the 1990s regarding reliance on the dollar?
What is a possible outcome for countries that have pegged their currencies to the dollar?
What is a possible outcome for countries that have pegged their currencies to the dollar?
Which phenomenon has the potential to lead to debt restructuring for debtor countries?
Which phenomenon has the potential to lead to debt restructuring for debtor countries?
What percentage of low-income countries are at risk of debt distress according to estimates?
What percentage of low-income countries are at risk of debt distress according to estimates?
What major events could lead to significant economic hardship for debtor countries?
What major events could lead to significant economic hardship for debtor countries?
What is the likely impact of rising interest rates in the current environment?
What is the likely impact of rising interest rates in the current environment?
What is the key characteristic of a currency board system?
What is the key characteristic of a currency board system?
What does a fixed exchange rate system require from a central bank?
What does a fixed exchange rate system require from a central bank?
What potential issue arises when a country relies heavily on foreign currency reserves?
What potential issue arises when a country relies heavily on foreign currency reserves?
Which currency is the Hong Kong dollar pegged to?
Which currency is the Hong Kong dollar pegged to?
What does a fully fixed system require for currency maintenance?
What does a fully fixed system require for currency maintenance?
Which statement best describes free-floating currencies?
Which statement best describes free-floating currencies?
What was the expected future aim of Bulgaria regarding its currency?
What was the expected future aim of Bulgaria regarding its currency?
What challenge is posed to countries seeking alternatives to the dollar?
What challenge is posed to countries seeking alternatives to the dollar?
What is the role of federal reserve policy changes on the global economy?
What is the role of federal reserve policy changes on the global economy?
How does Russia's situation illustrate a challenge in the global monetary system?
How does Russia's situation illustrate a challenge in the global monetary system?
Which component is essential for a semi-fixed exchange rate system?
Which component is essential for a semi-fixed exchange rate system?
What can significantly weaken the appeal of the renminbi as an alternative currency?
What can significantly weaken the appeal of the renminbi as an alternative currency?
What does the central bank of Denmark primarily focus on regarding its currency?
What does the central bank of Denmark primarily focus on regarding its currency?
Why is it advised for emerging-market economies to borrow in their own currency rather than foreign currencies?
Why is it advised for emerging-market economies to borrow in their own currency rather than foreign currencies?
What has been a detrimental experience for economies that financed household debts in foreign currencies?
What has been a detrimental experience for economies that financed household debts in foreign currencies?
What factor is most critical in determining the tightening of the Fed's monetary policy?
What factor is most critical in determining the tightening of the Fed's monetary policy?
What is the Big Mac index used to illustrate?
What is the Big Mac index used to illustrate?
What was the result of investing in the most undervalued currency according to the Big Mac index?
What was the result of investing in the most undervalued currency according to the Big Mac index?
What does the phrase 'the Wall Street consensus' highlight?
What does the phrase 'the Wall Street consensus' highlight?
What is a significant impact of a strong U.S. economy on the global financial system?
What is a significant impact of a strong U.S. economy on the global financial system?
What is indicated when Hong Kong's monetary authority sells Hong Kong dollars to prevent too much strengthening?
What is indicated when Hong Kong's monetary authority sells Hong Kong dollars to prevent too much strengthening?
What does it mean when it is said that foreign-currency debts are 'too big to fail'?
What does it mean when it is said that foreign-currency debts are 'too big to fail'?
What improvement is suggested by a mild U.S. recession with rapidly falling inflation?
What improvement is suggested by a mild U.S. recession with rapidly falling inflation?
Why was financial support provided to South Africa for restructuring Eskom?
Why was financial support provided to South Africa for restructuring Eskom?
What lesson can be drawn from the experiences of Eastern European economies during the 2008 crisis?
What lesson can be drawn from the experiences of Eastern European economies during the 2008 crisis?
What economic strategy did the liquidity swap lines of the Fed create during crises?
What economic strategy did the liquidity swap lines of the Fed create during crises?
Which factor can cause deviations from Purchasing Power Parity (PPP) to narrow?
Which factor can cause deviations from Purchasing Power Parity (PPP) to narrow?
What has been observed about the price of a Maharaja Mac in India compared to an American Big Mac?
What has been observed about the price of a Maharaja Mac in India compared to an American Big Mac?
Why do proponents of PPP acknowledge that rich countries tend to be more expensive than poor ones?
Why do proponents of PPP acknowledge that rich countries tend to be more expensive than poor ones?
What was the outcome of following a currency trading strategy based on the adjusted Big Mac index?
What was the outcome of following a currency trading strategy based on the adjusted Big Mac index?
What do few empirically literate economists believe about PPP?
What do few empirically literate economists believe about PPP?
What factor makes Euronext more likely to acquire the Borsa group?
What factor makes Euronext more likely to acquire the Borsa group?
How have politicians in Italy responded to the potential foreign sale of the Borsa group?
How have politicians in Italy responded to the potential foreign sale of the Borsa group?
What has been the average revenue MTS provides to LCH annually?
What has been the average revenue MTS provides to LCH annually?
What characterizes the investment risk of betting against Hong Kong's currency?
What characterizes the investment risk of betting against Hong Kong's currency?
What was the overall performance of the Big Mac back-test study?
What was the overall performance of the Big Mac back-test study?
What key agreement established a European Union with a common monetary policy?
What key agreement established a European Union with a common monetary policy?
What was the beginning date for the introduction of the common currency within the monetary union?
What was the beginning date for the introduction of the common currency within the monetary union?
Which country negotiated an opt-out from the monetary union?
Which country negotiated an opt-out from the monetary union?
What of the following is NOT one of the Maastricht convergence criteria?
What of the following is NOT one of the Maastricht convergence criteria?
What crisis began in 1992 that threatened the monetary union project?
What crisis began in 1992 that threatened the monetary union project?
Which entity was created in 1994 as a precursor to the European Central Bank?
Which entity was created in 1994 as a precursor to the European Central Bank?
When did euro coins and banknotes officially start circulating?
When did euro coins and banknotes officially start circulating?
By what percentage do euros constitute the foreign-exchange reserves owned by central banks compared to dollars?
By what percentage do euros constitute the foreign-exchange reserves owned by central banks compared to dollars?
Which of the following currencies is primarily used for international commodity pricing?
Which of the following currencies is primarily used for international commodity pricing?
Which country was deemed ineligible to join the monetary union due to unmet conditions?
Which country was deemed ineligible to join the monetary union due to unmet conditions?
What event prompted investors to revert to the dollar as their primary currency of choice in 2007?
What event prompted investors to revert to the dollar as their primary currency of choice in 2007?
What proportion of euro banknotes by value is estimated to be held outside of the euro area?
What proportion of euro banknotes by value is estimated to be held outside of the euro area?
What was a significant milestone for the euro issued as part of the Next Generation EU scheme?
What was a significant milestone for the euro issued as part of the Next Generation EU scheme?
What does a currency's international presence help achieve for governments?
What does a currency's international presence help achieve for governments?
Flashcards
Money
Money
A generally accepted medium of exchange in a society to trade goods without barter. It represents or stores value.
Commodity money
Commodity money
Money with intrinsic value; made of valuable materials like gold or silver.
Token money
Token money
Money that represents a specific value, exchangeable for something with intrinsic value.
Fiat money
Fiat money
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Potosi's impact on Capitalism
Potosi's impact on Capitalism
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Potosi's silver mining
Potosi's silver mining
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Impact on World Economies
Impact on World Economies
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Capitalism
Capitalism
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Differentiated Integration
Differentiated Integration
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Euro's History
Euro's History
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Bretton Woods System
Bretton Woods System
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Werner Plan
Werner Plan
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Economic Convergence
Economic Convergence
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Currency Snake
Currency Snake
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European Monetary System (EMS)
European Monetary System (EMS)
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ECU (European Currency Unit)
ECU (European Currency Unit)
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Exchange Rate Mechanism (ERM)
Exchange Rate Mechanism (ERM)
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Delors Plan
Delors Plan
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Stage 1 of the Delors Plan
Stage 1 of the Delors Plan
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Stage 2 of the Delors Plan
Stage 2 of the Delors Plan
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Stage 3 of the Delors Plan
Stage 3 of the Delors Plan
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Central Bank
Central Bank
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Bank of England
Bank of England
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Federal Reserve (Fed)
Federal Reserve (Fed)
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Bank of Canada
Bank of Canada
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Gold Standard
Gold Standard
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Fiat System
Fiat System
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Lender of Last Resort
Lender of Last Resort
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Chartered Banks
Chartered Banks
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Branch Banking System
Branch Banking System
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Run on the Bank
Run on the Bank
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The Great Depression
The Great Depression
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Bank Act Revision of 1967
Bank Act Revision of 1967
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Inflation
Inflation
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Interest Rates
Interest Rates
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Monetary Policy
Monetary Policy
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Euro's international use
Euro's international use
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Strategic autonomy
Strategic autonomy
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Sanctions weaponization
Sanctions weaponization
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Global reserve currency
Global reserve currency
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Capital flows
Capital flows
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NGEU scheme
NGEU scheme
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Pan-EU bond
Pan-EU bond
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Safe asset
Safe asset
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Financial union
Financial union
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Fiscal redistribution
Fiscal redistribution
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Taper tantrum
Taper tantrum
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Central bank digital currency
Central bank digital currency
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Network effects
Network effects
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Exorbitant privilege
Exorbitant privilege
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Euro Launch
Euro Launch
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NGEU Bonds
NGEU Bonds
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Currency's International Presence
Currency's International Presence
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Euro's Global Reach
Euro's Global Reach
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Euro's Use Outside the EU
Euro's Use Outside the EU
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Euro's Share in Global Transactions
Euro's Share in Global Transactions
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Euro's Initial Potential
Euro's Initial Potential
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Impact of the Financial Crisis (2007)
Impact of the Financial Crisis (2007)
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Maastricht Treaty
Maastricht Treaty
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Convergence Criteria
Convergence Criteria
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Opt-out from the Euro
Opt-out from the Euro
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Euro's Introduction
Euro's Introduction
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Euro's Expansion
Euro's Expansion
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Floating Exchange Rate
Floating Exchange Rate
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Depreciation
Depreciation
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Appreciation
Appreciation
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Fixed Exchange Rate
Fixed Exchange Rate
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Devaluation
Devaluation
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Reevaluation
Reevaluation
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Currency Board System
Currency Board System
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Pegged Currency
Pegged Currency
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Foreign Reserve Currency
Foreign Reserve Currency
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Intervention (Exchange Rate)
Intervention (Exchange Rate)
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Semi-Fixed Exchange Rate
Semi-Fixed Exchange Rate
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Fully Fixed Exchange Rate
Fully Fixed Exchange Rate
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Dollar Power
Dollar Power
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Alternative Currency System
Alternative Currency System
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Dim Sum Bond Market
Dim Sum Bond Market
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Free Floating Exchange Rate
Free Floating Exchange Rate
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Managed Floating Exchange Rate
Managed Floating Exchange Rate
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Semi-Fixed Exchange Rate (Crawling Peg)
Semi-Fixed Exchange Rate (Crawling Peg)
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Fully Fixed Exchange Rate (Hard Peg)
Fully Fixed Exchange Rate (Hard Peg)
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What are the main currency systems countries can choose?
What are the main currency systems countries can choose?
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What is the difference between free floating and managed floating exchange rates?
What is the difference between free floating and managed floating exchange rates?
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What are the benefits of a free floating exchange rate?
What are the benefits of a free floating exchange rate?
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What are the benefits of a managed floating exchange rate?
What are the benefits of a managed floating exchange rate?
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What are the challenges of a fully fixed exchange rate?
What are the challenges of a fully fixed exchange rate?
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What are the advantages of a currency board system?
What are the advantages of a currency board system?
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What is an adjustable peg?
What is an adjustable peg?
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How does a fixed exchange rate affect central banks?
How does a fixed exchange rate affect central banks?
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What is a 'shadow currency market'?
What is a 'shadow currency market'?
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Currency Risk in Emerging Markets
Currency Risk in Emerging Markets
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Foreign Currency Debt and 'Too Big to Fail'
Foreign Currency Debt and 'Too Big to Fail'
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Wall Street Consensus and the Dollar System
Wall Street Consensus and the Dollar System
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Public-Private Partnership in Global Finance
Public-Private Partnership in Global Finance
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US Economy and the Dollar System
US Economy and the Dollar System
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Fed's Tightening and Global Economy
Fed's Tightening and Global Economy
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Soft Landing and the Dollar System
Soft Landing and the Dollar System
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Heads I Win, Tails You Lose
Heads I Win, Tails You Lose
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Hong Kong's Peg and the Big Mac Index
Hong Kong's Peg and the Big Mac Index
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Purchasing Power Parity
Purchasing Power Parity
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Big Mac Index and Speculation
Big Mac Index and Speculation
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Investing in Undervalued Currencies
Investing in Undervalued Currencies
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Currency Devaluation Risk
Currency Devaluation Risk
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'Too Big to Fail' Syndrome
'Too Big to Fail' Syndrome
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Purchasing Power Parity (PPP)
Purchasing Power Parity (PPP)
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Big Mac Index
Big Mac Index
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Adjusted Big Mac Index
Adjusted Big Mac Index
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Currency Speculation
Currency Speculation
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Short-Term PPP Validity
Short-Term PPP Validity
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Anchoring Power of PPP
Anchoring Power of PPP
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LSE's Sale of MTS
LSE's Sale of MTS
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Euronext's Acquisition of Borsa Italia
Euronext's Acquisition of Borsa Italia
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Strategic Importance of Borsa Italia
Strategic Importance of Borsa Italia
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Golden Power Law
Golden Power Law
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Dollar Liquidity
Dollar Liquidity
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Dollar's Global Dominance
Dollar's Global Dominance
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What backs the dollar's strength?
What backs the dollar's strength?
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Impact of Rising Dollar
Impact of Rising Dollar
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Dollar-Based Financial Network
Dollar-Based Financial Network
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Synchronization of Interest Rate Rises
Synchronization of Interest Rate Rises
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Risk of Financial System Breakdown
Risk of Financial System Breakdown
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Debt Distress in Low-Income Countries
Debt Distress in Low-Income Countries
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Variable Interest Rate Debt
Variable Interest Rate Debt
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Dollar's Fragility
Dollar's Fragility
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Managing Dollar Dependence
Managing Dollar Dependence
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Dollar's Impact on Asset Balances
Dollar's Impact on Asset Balances
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Avoiding a Systemic Crisis
Avoiding a Systemic Crisis
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Who is most affected by dollar fluctuations?
Who is most affected by dollar fluctuations?
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Borrowing in Own Currency
Borrowing in Own Currency
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Foreign Currency Debt: Too Big to Fail
Foreign Currency Debt: Too Big to Fail
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Wall Street Consensus
Wall Street Consensus
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US Economy's Role in the Dollar System
US Economy's Role in the Dollar System
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Fed's Tightening and the Global Economy
Fed's Tightening and the Global Economy
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Heads I Win, Tails You Lose (Dollar System)
Heads I Win, Tails You Lose (Dollar System)
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Big Mac Index: Currency Valuation
Big Mac Index: Currency Valuation
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Hong Kong's Currency Peg
Hong Kong's Currency Peg
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Currency Speculators and the Big Mac Index
Currency Speculators and the Big Mac Index
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Modest Deviations from Fair Value (Big Mac Index)
Modest Deviations from Fair Value (Big Mac Index)
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Big Mac Index: Past Performance
Big Mac Index: Past Performance
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Study Notes
Money and Currency Systems
- Money is any generally accepted medium of exchange, enabling trade without barter. It's also a store of value. Physical money (coins, banknotes) represents value agreed upon by society, while digital currency represents ownership records.
- Commodity money uses valuable materials (gold, silver), while token money (coins, paper) can be exchanged for commodity value. Fiat money is issued by a government without backing; its value comes from government decree.
- Potosi, a silver mine in South America, was a crucial factor in Spanish expansion, as the silver influx revolutionized European economies, leading to capitalism's rise. However, the local population did not benefit.
- The modern equivalent of Potosi's resources might be lithium, a critical element for modern batteries. How this resource is developed will shape future capitalism.
- Banks are crucial to capitalist systems, facilitating transactions and offering services like loans.
Banks and Central Banks
- Commercial banks handle deposits and loans; central banks control monetary policy, manage the economy. The Bank of England was a pioneering central bank.
- Central banks, like the Federal Reserve (US), aim to maximize employment, stabilize prices, and moderate long-term interest rates.
- The 1907 financial crisis in the US highlighted the need for centralized control, leading to the Federal Reserve's creation.
- The Bank of Canada, later established, was established due to the Great Depression, in response to abandoning the gold standard.
- Canadian chartered banks play a substantial role, taking deposits and making loans. They're heavily regulated. Several bank failures throughout early 20th century banking history helped force stronger regulation.
- New innovations like Bitcoin and Apple Pay rely on social trust to function.
The Euro
- The euro, the common currency of many European Union members, has a complex history stemming from the need for monetary cooperation amidst international monetary instability.
- The Bretton Woods system, based on fixed exchange rates, played a crucial role before the euro's eventual adoption.
- The European Monetary System and adjustments to exchange rates were implemented. The euro's introduction was a multi-stage process involving various political and economic pressures, eventual compromises, and controversies.
- The Maastricht Treaty formalized the euro's introduction and established convergence criteria for participating countries.
- The euro's international role, while not dominating the dollar, is gaining importance, particularly through the Next Generation EU bonds.
- Despite its appeal, issues remain. Factors like the limitations of a coherent financial union hinder the euro's full potential.
Exchange Rate Systems
- Countries use various exchange rate systems (free floating, managed floating, fixed, and currency boards).
- In a free floating system, markets determine exchange rates.
- Managed floating systems allow central banks to intervene occasionally to influence exchange rates.
- Fixed exchange rate systems peg a currency to another, necessitating significant foreign exchange reserves.
The Global Dominance of the Dollar
- The US dollar's influence in global finance is substantial, with nearly 90 percent of currency transactions involving it.
- This dominance is supported by abundant liquidity, wide acceptance, and, crucially, US military and political strength.
- A rising or falling dollar affects global trade, debt levels, and the economies of other countries significantly.
- The dollar's prominence presents challenges for other currencies. Countries increasingly look to alternative financial systems or de-risk their economies.
The Economist: The Big Mac Index
- The Big Mac Index, a simple purchasing power parity comparison, doesn't consistently predict exchange rate movements.
- Deviations from expected values often correct over time through varying price movements or exchange rates themselves.
- Long-term analysis might offer broader insights within a more comprehensive economic framework, but the index is more of a simplistic tool for general observation than effective prediction, though it can serve as a discussion starter.
- Other more complex factors beyond simple price comparisons influence currencies in the short term.
Financial and Stock Trading
- The London Stock Exchange (LSE) is putting the Borsa group (including MTS) up for sale.
- The sale is likely to be acquired by Euronext or any large exchange entity, with Rome (Italy) actively interested in the transaction to ensure some degree of Italian governance of the entity.
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Description
Test your knowledge on various money and currency systems, including the evolution of money, types of money like commodity and fiat, and historical contexts like Potosi's impact on capitalism. Understand the role of banks in facilitating modern economies and how resources shape economic futures.
