Question

Explain Why individuals and companies buy foreign currencies

Answer 1

General individuals and companies use foreign currency for different purposes-

A. General individual can use foreign currency to buy into foreign currency for speculating into the foreign markets.

B.it can also be used as a tool for hedging from any kind of interest rate risk and exchange rate risk which are prevalent in global economy.

C. Buying of foreign currency is also a very good instrument for diversification of risk into the portfolio.

D.Buying into foreign currency can be done in order to speculate on to geopolitical events

E. Buying into foreign currency can also be an alternate strategy for hedging against depreciation into the domestic currency value, and it can magnify the return when investment is done into the foreign currency at the time of the depreciation of domestic currency.

F. It can be used for hedging against various kinds of political events which are prevalent in the global economy.