foreign currency gaps

5 flashcards · Economics · by Addaneye

1. What is a foreign currency gap?

   When total outflows of foreign currency exceed total inflows of foreign currency

2. Why is a foreign currency gap a problem for a country?

   Foreign currency gap >> countries need to sell their currency >> depreciation in currency >> increase in import prices >> cost push inflation >> constrains economic growth

3. How can countries close their foreign currency gap?

   Diversification of exports

4. How can diversification of exports positively impact an economy?

   Increase in demand for exports >> increase in demand for currency >> decrease in price of imports

5. Diversification of exports (ev.)

   Only see benefits in the long run May cause national debt to accumulate