Global financial markets - FOREX market (1 Viewer)

[planino]

My textbook says
"When a currency begins to fall, short term investors will often sell their holdings of foreign exchange, expecting to be able to make a quick profit as the currency falls. When a large number of investors do this, it can destabilise an entire economy."

Would anybody be able to explain this to me?

 

[shravan_872]

It's called speculative behaviour. If speculators expect the value of the $A to go down, they will sell their holdings of $A in order to make a quick profit and this large increases in supply of the $A will cause foreign investors lose confidence in the Australian economy causing them to pull their investments out and then destabilising the economy. This large depreciation of the Australian dollar will increase the level of inflation in the economy causing the government to implement contractionary monetary policy to reduce inflation causing a slow down of economic growth and hence an increase in cyclical unemployment. Blah Blah

 

[planino]

Thanks very muchly Twas crystal clear

Would you (or anybody else) also say that an economy's currency is likely to have a higher value if it's traded with more frequently as the high demand for the currency (hence the high frequency of trading activity) would push it's value up?

Is "the value of a currency is seen as an indication of overseas confidence in the economy's future" because a higher value of an economy's currency means an increased frequency at which it is traded, which results in increased confidence??

Once again, thanks, and good luck for Paper 2 (and etc.)

 

[superSAIyan2]

well when currency falls it must not have been stable thus the term destabilising is used
Furthermore i hope thatif currency does fall, it does not get hurt.

HAHA

 

[shravan_872]

Thanks very muchly Twas crystal clear

Would you (or anybody else) also say that an economy's currency is likely to have a higher value if it's traded with more frequently as the high demand for the currency (hence the high frequency of trading activity) would push it's value up?

Is "the value of a currency is seen as an indication of overseas confidence in the economy's future" because a higher value of an economy's currency means an increased frequency at which it is traded, which results in increased confidence??

Once again, thanks, and good luck for Paper 2 (and etc.)

Thanks! No, if the currency is traded more frequently it is likely to have large swings in the currency because there is going to be a constantly changing supply and demand for the curreny. This will also destabilise the economy as nobody will want to invest in an economy where there is not an almost certain chance of profit. An easy way to understand this is to see it from the point of view of the investor, wouldn't you choose to invest in an economy where the is a certain chance of profit?

 

[planino]

Thank you, I hope your economics exam went well

superSAIyan2, I can think of 1,112 reasons to write in your book now, with the help of a potato

 

[superSAIyan2]

hahaha and i can think of 3,5,21,21 different ways to smash you in economics and ruin ur shirt with that kool pipette !!!!!

LOL i think i forgot ur second rank....oh wells its somewhere around 5

 

[superSAIyan2]

oi planino can you also post the results forthe FIRST bio prac on substrate concentration when H2O2 was 10ml - wasthe avg bubble height 9.3

 

[planino]

For the 5th test tube (with 10ml peroxide), yes. This is for the first ('faulty' edition) prac. We haven't collated the group results for the 2nd version of the prac yet

 

[superSAIyan2]

lol i dont think we are gonna collate results...since reports due on tuesday

I already finished mine - i just used our group results (lol no reliability)