Definitions - External Trade

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Balance Of Payments

• A set of accounts that summarise a country’s transactions with the rest of the world.

Balance Of Payments (BOP)

• A statement that summarizes an economy’s transactions with the rest of the world for a specified time period.
• The balance of payments, also known as balance of international payments, encompasses all transactions between a country’s residents and its nonresidents involving goods, services and income; financial claims on and liabilities to the rest of the world; and transfers such as gifts.
• The balance of payments classifies these transactions in two accounts – the current account and the capital account.
• The current account includes transactions in goods, services, investment income and current transfers, while the capital account mainly includes transactions in financial instruments.
• An economy’s balance of payments transactions and international investment position (IIP) together constitute its set of international accounts.
• Despite its name, the “balance of payments” data is not concerned with actual payments made and received by an economy, but rather with transactions.

Balance Of Trade - BOT

• The difference between a country's imports and its exports. Balance of trade is the largest component of a country's balance of payments. Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy. A country has a trade deficit if it imports more than it exports; the opposite scenario is a trade surplus.
• Also referred to as "trade balance" or "international trade balance."

Exports

• Sale of goods and services by the domestic country to the rest of the world.

External sector

• It refers to the economic transaction of the domestic country with the rest of the world.

Fixed exchange rate

• An exchange rate between the currencies of two or more countries that is fixed at some level and adjusted only infrequently.

Fixed exchange-rate system

• A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime where a currency's value is fixed against either the value of another single currency, to a basket of other currencies, or to another measure of value, such as gold.
• A fixed exchange rate is usually used in order to stabilize the value of a currency by directly fixing its value in a predetermined ratio to a different, more stable or more internationally prevalent currency (or currencies), to which the value is pegged.
• In doing so, the exchange rate between the currency and its peg does not change based on market conditions, the way floating currencies will do.

Pegged within a band

• A currency is said to be pegged within a band when the central bank specifies a central exchange rate with reference to a single currency

Floating exchange rate

• A floating exchange rate or fluctuating exchange rate is a type of exchange-rate regime in which a currency's value is allowed to fluctuate in response to market mechanisms of the foreign-exchange market.
• A currency that uses a floating exchange rate is known as a floating currency. A floating currency is contrasted with a fixed currency.

Foreign exchange market

• global decentralized market for the trading of currencies
• The main participants in this market are the larger international banks.
• The foreign exchange market determines the relative values of different currencies
• The foreign exchange market works through financial institutions, and it operates on several levels.
• Behind the scenes banks turn to a smaller number of financial firms known as “dealers,” who are actively involved in large quantities of foreign exchange trading.
• Based on demand for a particular currency, the relative value will be determined by the forex market 

Flexible/floating exchange rate

• An exchange rate determined by the forces of demand and supply in the foreign exchange market without central bank intervention.

Flows

• Variables which are defined over a period of time.

Foreign exchange

• Foreign currency, all currencies other than the domestic currency of a given country.

Foreign exchange reserves

• Nature and value of foreign assets held by a country
• Foreign assets held by the central bank of the country.

Medium of exchange

• The principal function of money for facilitating commodity exchanges.

Nominal exchange rate

• The number of units of domestic currency one must give up to get an unit of foreign currency; the price of foreign currency in terms of domestic currency.

Pegging

• A method of stabilizing a country's currency by fixing its exchange rate to that of another country.

Trade Deficit

• An economic measure of a negative balance of trade in which a country's imports exceeds its exports. A trade deficit represents an outflow of domestic currency to foreign markets.

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