Glossary of Terms

Balance of Trade:
The difference between a country’s imports and its exports. Balance of trade is the largest component of a country’s balance of payments.

Balance of Payments:
Balance of payments accounts are an accounting record of all monetary transactions between a country and the rest of the world. When all components of the BOP accounts are included they must sum to zero with no overall surplus or deficit. For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counterbalanced in other ways – such as by funds earned from its foreign investments, by running down central bank reserves or by receiving loans from other countries.

Capital Account:
The capital account reflects net change in ownership of national assets. A surplus in the capital account means money is flowing into the country, but unlike a surplus in the current account, the inbound flows will effectively represent borrowings or sales of assets rather than payment for work. A deficit in the capital account means money is flowing out the country, and it suggests the nation is increasing its ownership of foreign assets.

Consumer Price Index:
A measure that examines the changes of prices of a basket of consumer goods and services. Changes in CPI are used to assess price changes associated with the cost of living.

Corner a Market:
To acquire enough shares of a particular security type, such as those of a firm in a niche industry, or to hold a significant commodity position so as to be able to manipulate its price.

Credit money, money issued by commercial banks and central banks.

Credit Controls:
See Window Guidance.

Credit Creation:
Money creation.

Credit Cycle:
The credit cycle is the expansion and contraction of access to credit over time.

Currency Peg:
A fixed exchange-rate system, also known as a pegged exchange rate system, is a currency system in which governments try to maintain their currency value constant against one another. In a fixed exchange-rate system, a country’s government decides the worth of its currency in terms of either a fixed weight of gold, a fixed amount of another currency or a basket of other currencies.

Currency Account:
It is the sum of the balance of trade (i.e., net revenue on exports minus payments for imports), factor income (earnings on foreign investments minus payments made to foreign investors) and cash transfers.

Deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate).

Devaluing Currency:
A reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged.