Lesson+7

Important Terms From This Chapter
Money-anything people will accept for the exchange of goods and services

__**The Five Characteristics of Money**__
 * Acceptability**-people must be willing to take an item in exchange for what they are selling
 * Scarcity**-for something to be used as money, there cannot be an unlimited supply; it must be something scarce
 * Durability**-something that cannot be damaged or easily spoiled.
 * Divisibility**-money must be easily divided
 * Portability**-money must be easily moved from one location to another


 * Foreign Exchange**-the process of converting the currency of one country into the currency of another country
 * Exchange Rate**-the amount of one currency that can be traded for one unit of another currency

__Exchange Rates are affected by three main factors__:

1. Balance of Payments-the measure of a total flow of money coming into the country minus the total flow going out

2. Economic Conditions Interest Rate-the cost of using someone else's money or borrowing

__Interest Rates are affected by three main factors__: Money Supply and Demand-if more people want to borrow, then interest rates increase Risk-the higher the risk associated with the repayment of the loan, the higher the interest rate Inflation-if prices are increasing, lenders charge higher interest rates

3. Political Stability


 * Foreign Exchange Market**-network of banks and financial institutions that buy and sell different currencies

__**Currency Transactions Between Nations**__
 * Cash in Advance**-paying in cash before goods are received.
 * Letter of Credit**-a financial document issued by a bank for an importer in which the bank guarantees payment
 * Sale on Account**-selling on credit, buyer promised to pay within a specific time frame. Trade credit consists of...
 * A//ccounts receivable//** (you owe me money) and //accounts payable// (I owe you money)
 * Bond**-a certificate representing money borrowed over a long period of time (5-30 years) which will be repaid with interest
 * Promissory note**-a legal document that represents a promise to pay a set amount by a certain date
 * Bill of Exchange**-a written order by an exporter to an importer instructing how to make payment
 * Electronic Funds Transfer (EFT**)-moving payments through banking computer systems
 * Invoice**-provides a description of the merchandise and the amount and date due
 * Insurance certificate**-usually a part of import/export transactions, provides for payment in the case of loss(fire, water, theft)