ECON 13 Lecture Notes - Lecture 10: Foreign Exchange Market, The Foreign Exchange, International Finance
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Document Summary
International finance is the branch of economics that studies the dynamics of exchange rates, foreign investment, and how these affect international trade. Dollarize - when a foreign country uses the as currency. Monetary policy - the process by which the central bank controls the supply of money. A tight monetary policy means lowering money supply. Fdi - investing in other countries with direct management. Portfolio investment - pure financial investments with no direct management responsibility. Whereas international trade theory makes use of mostly microeconomic methods and theories, international finance theory makes use of predominantly macroeconomic methods and concepts. Hence, international finance is also known as international macroeconomics. The foreign exchange market is the market in which people and firms exchange one currency to purchase another currency. The exchange rate is defined as the rate at which we can exchange one currency for another.
