Question

In the discussion of Exchange Rates and Macroeconomic Performance it was discussed that people purchase a country’s currency for two reasons, what are they?

Answer 1

Soln. People purchase a country's currency for the mentioned below two reasons -

1. To do a trade with the country, people need to purchase currency of that particular currency.If people need to bu goods from other country and that country accepts only local currency then that time people need to purchase that country's currency to execute the trade.

2. People purchase country's currency to leverage the benefit of exchange rate fluctuations. Every country has equivalent exchange rate for other country's currency. People purchase the currency when the exchange rate is low to sell in future, when exchange rate rises, to gain from their purchases.