Glossary Terms:

Exchange Rates and Exchange: How Money Affects Trade

Glossary terms from:

Balance of Trade

The part of a nation's balance of payments accounts that deals only with its imports and exports of goods and services. The balance of trade is divided into the balance on goods (merchandise) and the balance on services. If the value of a country's exports of goods and services is greater than its imports, it has a balance of trade surplus. If the value of a country's imports of goods and services is greater than its exports, it has a balance of trade deficit.


Monetary or non-monetary gain received because of an action taken or a decision made.


Any activity or organization that produces or exchanges goods or services for a profit.


Resources and goods made and used to produce other goods and services. Examples include buildings, machinery, tools and equipment. In the context of credit transactions, capital is one of the Three Cs of Credit. It is an indicator of how creditworthy a prospective borrower is likely to be as determined by the borrower's current financial assets and net worth.


A written order to a financial institution directing the financial institution to pay a stated amount of money, as instructed, from the customer's account.


Government-issued pieces of metal that have value and are used as money.


People who use goods and services to satisfy their personal needs and not for resale or in the production of other goods and services.


An amount that must be paid or spent to buy or obtain something. The effort, loss or sacrifice necessary to achieve or obtain something.


The money in circulation in any country.


The quantity of a good or service that buyers are willing and able to buy at all possible prices during a period of time.


A reduction in the value of capital goods over time due to their use in production.


Trading a good or service for another good or service, or for money.

Exchange Rate

The price of one nation's currency in terms of another nation's currency.


Goods and services produced in one nation and sold in other nations.


Economic units that demand productive resources from households and supply goods and services to households and government agencies.

Foreign Exchange Market

The market where the demand for and supply of foreign currencies determines exchange rates.


Tangible objects that satisfy economic wants.


Goods and services bought from sellers in another nation.


A rise in the general or average price level of all the goods and services produced in an economy. Can be caused by pressure from the demand side of the market (demand-pull inflation) or pressure from the supply side of the market (cost-push inflation).


Money paid regularly, at a particular rate, for the use of borrowed money.

Interest Rate

The price paid for using someone else's money, expressed as a percentage of the amount borrowed.


Places, institutions or technological arrangements where or by means of which goods or services are exchanged. Also, the set of all sale and purchase transactions that affect the price of some good or service.


Anything that is generally accepted as final payment for goods and services; serves as a medium of exchange, a store of value and a standard of value. Characteristics of money are portability, stability in value, uniformity, durability and acceptance.


The amount of money that people pay when they buy a good or service; the amount they receive when they sell a good or service.


People and firms that use resources to make goods and services.


A good or service that can be used to satisfy a want.

Quantity Demanded

The amount of a good or service people will buy at a given price in a given period of time.

Standard of Living

The level of subsistence of a nation, social class or individual with reference to the adequacy of necessities and comforts of daily life.


The amount of a good or service that producers are willing and able to offer for sale at each possible price during a given period of time. Normally, as the price of a good or service rises (or falls), the quantity supplied of the good or service rises (or falls).


The situation that results when the quantity supplied of a product exceeds the quantity demanded. Generally happens because the price of the product is above the market equilibrium price.


The exchange of goods and services for money or other goods and services.


People employed to do work, producing goods and services.