The markets that have a smaller amount of foreign exchange trading for speculatory purposes than for trade purposes will likely experience more volatility than those where trade flows play a larger role.

Question

Quizplus · Accepted Answer

When a market has a smaller amount of foreign exchange trading for speculative purposes, the trade flows hold greater significance on the market. Trade flows are determined by economic conditions and policies of the countries involved, and they tend to have a more consistent pattern. When speculation dominates the market, the trades are based on predictions and assumptions, which can introduce volatility. Therefore, a lower amount of speculative trading is likely to create a more stable market.

The Markets That Have a Smaller Amount of Foreign Exchange