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How does speculation in currencies affect the value of a nation's currency?
On May 03, 2024
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.