Question

10-4. Do you think that currency speculators perform a valuable service by correcting overvalued or undervalued currencies?

Answer 1

Currency speculators are those who trade in foreign currency by either selling or holding it in an anticipation of appreciation of the foreign currency to make gains. The speculation aids in containing foreign currency exchange risks for investors and companies who have cross border transactions. The one side of the argument is the ethics part of it. Since most of the transactions involve high risk and an a sizeable amount of guessing if the currency will go up or down in the future, traders may resort to unscrupulous means to make profits. The information of and through the markets plays an important role in the speculative activities and they many indulge in spreading false news disturbing the economy. The other side of the argument is that currency speculation is necessary for a healthy competition in the economy and helps in stabilizing currency exchange rates in the long run through demand and sell. They also create investment opportunities for those who have high risk appetite and help in diversification.