Asked by Aaron Morris on Apr 29, 2024
Verified
How does speculation in currencies affect the value of a nation's currency?
Speculation
The act of investing in financial assets with the hope of profiting from future price changes, often involving significant risk.
Nation's Currency
The legally accepted form of money that circulates within a country and serves as a medium of exchange, store of value, and unit of account.
- Comprehend the influence of alterations in taste and additional factors on a country's currency value.
Verified Answer
SK
sylvie kengneMay 03, 2024
Final Answer :
Currency speculators buy and sell currency with an eye toward reselling or repurchasing them at a profit. For instance, if speculators believe that the South Korean won will soon depreciate, they could try to convert the won into another currency, like the Taiwanese dollar. This will cause the South Korean won to actually depreciate and the Taiwanese dollar to appreciate. A self-fulfilling prophecy occurred: the won depreciated because speculators acted on the belief that those changes would take place. This is how speculation can cause changes in exchange rates.
Learning Objectives
- Comprehend the influence of alterations in taste and additional factors on a country's currency value.