Question : What is the term used to describe the buying and selling of currencies with the expectation of making a profit from exchange rate fluctuations?
Option 1: Currency hedging
Option 2: Currency speculation
Option 3: Currency manipulation
Option 4: Currency pegging
Correct Answer:
Currency speculation
Solution : The correct answer is b) Currency speculation
The term used to describe the buying and selling of currencies with the expectation of making a profit from exchange rate fluctuations is currency speculation. Currency speculators, also known as forex traders, engage in the market by taking positions on the future direction of currency exchange rates. They aim to profit from the fluctuations in currency values by buying a currency when they believe it will appreciate and selling it when they expect it to depreciate.
Currency speculation involves analyzing various factors, such as economic indicators, interest rate differentials, geopolitical events, and market sentiment, to make informed decisions about currency trades. It is a form of investment or trading strategy that seeks to capitalize on short-term price movements in the foreign exchange market.
It is important to note that currency speculation can be a high-risk activity and is subject to market volatility. Traders may use various techniques, tools, and financial instruments to manage risks associated with currency speculation, such as leveraging, stop-loss orders, and hedging strategies.
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