Ch. 27

• What is an exchange rate?

  The price of one currency in terms of another
• What is a fixed exchange rate?

  A system where the government fixes currency value
• How does a floating exchange rate operate?

  It finds its level through demand and supply
• What are foreign exchange reserves?

  Stocks of foreign currency and gold owned by the central bank
• What is the purpose of foreign exchange reserves?

  To meet mismatches between demand and supply of currency
• What is devaluation?

  Reducing the price of currency relative to foreign currency
• What is revaluation?

  Raising the price of domestic currency in terms of foreign currency
• What is hot money?

  Stocks of funds moved for the best return
• What does appreciation mean in currency terms?

  A rise in the exchange rate within a floating system
• What does depreciation mean in currency terms?

  A fall in the exchange rate within a floating system