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liquidity problem when a govern- ment or central bank runs short of needed international reserves

long position

the position specula-

market expectations


include news about future market fun-

d a m e n t a l s a n d t r a d e r s o p i n i o n future exchange rates s


resulting impact on domestic expendi- ture levels

monetary policy

refers to changes in

t h e m o n e y s u p p l y b y a n a t i o n s c e n t r a l

tors take when they purchase foreign

market fundamentals



currency on the spot or forward market

with the anticipation of selling it at a higher future spot price


Maastricht Treaty

signed in 1991,

this agreement set 2002 as the date for completing the process of replacing the

EU countriescentral banks with a European Central Bank and replacing their national currencies with a single European currency

magnification effect

an extension of

the Stolper-Samuelson theorem, which suggests that the change in the price of a resource is greater than the change in

the price of the good that uses the resources relatively intensively in its production process

managed floating system


exchange-rate system in which the rate is usually allowed to be determined by

the free-market forces of supply and demand, while sometimes entailing some degree of government (central bank) intervention

variables such as productivity, inflation

rates, real interest rates, consumer preferences, and government trade policy

market order

to buy or sell a cur-

rency at the current market price

Marshall-Lerner condition

a general

rule that states: (1) Depreciation will improve the trade balance if the currency-depreciating nations demand elasticity for imports plus the foreign demand elasticity for the nations exports exceeds one. (2) If the sum of the demand elasticities is less than one, depreciation will worsen the trade bal-

ance. (3) The trade balance will be neither helped nor hurt if the sum of the demand elasticities equals one

maturity months the months of a given year when the futures contract

matures mercantilists

an advocate or practi-

tioner of mercantilism; a national eco- nomic system in which a nation could regulate its domestic and international affairs so as to promote its own inter- ests through a strong foreign-trade sector

monetary union

the unification of

national monetary policies and the acceptance of a common currency administered by a supranational monetary authority

most-favored nation (MFN) clause an agreement between two nations to apply tariffs to each other at rates as low as those applied to any other nation

Multifiber Arrangement (MFA) system of rules negotiated by the



States and Europe

to restrict

competition from developing exporting

countries employing low-cost labor

multilateral contract stipulates a minimum

contract that price at which


will purchase


quantities from the producing


and a maximum price at which pro- ducing nations will sell guaranteed amounts to importers

multinational enterprise (MNE)


enterprise that cuts across national borders and is often directed from a company planning center that is distant

from the host country

margin of dumping

the amount by

w h i c h t h e d o m e s t i c p r i c e o f a f i r m s

product exceeds its foreign price, or the amount by which the foreign price of a

firms product is less than the cost of producing it

marginal rate of transformation (MRT) the slope of the production possibilities schedule that shows the amount of one product a nation must sacrifice to get one additional unit of the other product

market economy


the com-

merchandise trade balance

the result

of combining the dollar value of mer- chandise exports recorded as a plus (credit) and the dollar value of mer- chandise imports recorded as a minus

(debit) migration

moving from one country

to settle in another

Ministry of Economy, Trade, and Industry (METI) created by the Jap- anese government to implement its industrial policies in manufacturing

multiplier process

when an initial

increase in investment spending sets off a chain reaction that results in greater levels of spending, so that income increases by some multiple of the initial

investment increase


net creditor

the status of a nation


that countrys claims on for-


exceed foreign claims on that

country at a particular


mercial decisions of independent

buyers and sellers

acting in their own

monetary approach currency depreciation

an approach to that stresses the

net debtor

the status of a nation


foreign claims on a country

interest govern both domestic and international trade

effects depreciation has on the pur- chasing power of money and the

exceed that countrys claims on foreigners at a particular time

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