Expectations affect the exchange rate because:
A) arbitrageurs buy and sell currencies on the basis of expectations
B) speculators buy and sell currencies on the basis of expectations
C) all financial decisions are based on expectations
D) the central bank intervenes in the foreign exchange market when the domestic currency is expected to depreciate

Question

Quizplus · Accepted Answer

Speculators play a significant role in the foreign exchange market by buying and selling currencies based on their expectations of future movements, which can influence the exchange rate.

Expectations Affect the Exchange Rate Because