Economics Exchange Rates Questions
The role of speculation in exchange rate movements is that it can significantly influence and impact the fluctuations in exchange rates. Speculation refers to the practice of buying and selling currencies with the expectation of making a profit from the changes in their value. Traders and investors engage in speculation by analyzing various factors such as economic indicators, political events, and market trends to predict future exchange rate movements. Their actions can create demand or supply for a particular currency, leading to changes in its value relative to other currencies. Speculation can amplify exchange rate volatility and contribute to short-term fluctuations in exchange rates.