Exchange Rates and International Capital Flows (Economics)

Recall cards on exchange rates and international capital flows. The foreign exchange market: where currencies are traded, its size, and what creates the demand for and supply of a currency. Appreciation and depreciation, hedging, arbitrage, foreign direct investment, and portfolio investment. What shifts demand and supply in currency markets: expectations, speculation, relative interest rates, relative inflation, and purchasing power parity in the long run. The macroeconomic effects of exchange rates on exports, imports, aggregate demand, firms, and banks, plus the dangers of large international capital flows. Exchange rate policies: floating rates, soft pegs, hard pegs, merged currencies, and dollarization, and the trade-off between rate stability and an independent monetary policy.