Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It only affects the inflation rate
B
It can lead to currency appreciation or depreciation, affecting exports and imports
C
It has no significant impact on the trade balance
D
It only influences domestic production
Understanding the Answer
Let's break down why this is correct
Answer
Speculation in the foreign exchange market refers to when traders buy and sell currencies to make a profit, rather than for actual trade. When speculators believe a currency will increase in value, they buy it, which can raise its value. This increase can make a country's exports more expensive for foreign buyers, potentially reducing the amount of goods sold abroad. Conversely, if a currency weakens, exports may become cheaper and more attractive, leading to increased sales overseas. For example, if the U.
Detailed Explanation
Speculation can change how much a currency is worth. Other options are incorrect because Some might think speculation only changes prices in the economy; It's a common belief that speculation doesn't matter for trade.
Key Concepts
Foreign exchange market
Speculation in currency markets.
Topic
Currency Exchange and Trade Balance
Difficulty
medium level question
Cognitive Level
understand
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