Question

Short run speculation in currencies can create ________________________, at least for a time, where an expected appreciation leads to a stronger currency and vice versa.

Answer 1

Short run speculation in currencies can create a self fulfilling prophecy, at least for a time, where an expected appreciation leads to a stronger currency and vice versa.

Explanation:

The currency of a country can either appreciate or it can depreciate. If the currency of a country appreciates, it means that it has gone stronger in the currency market.

But if the currency of the country depreciates, then the currency has gone weaker in the market of the currency. With the appreciation of the currency, the imports for that country increases but it's exports decreases because it becomes expensive for other countries.