s a foreign exchange trader, how would you react to each of the following news i
ID: 1114984 • Letter: S
Question
s a foreign exchange trader, how would you react to each of the following news items as it flashes on your computer screen? (Will you sell the foreign currencies you have or buy more foreign currencies?) Explain.
A- Mexico’s oil reserves prove to be much smaller than touted earlier.
B- The Social Credit Party wins the national elections in Canada and promises generous expansion of the supply of money and credit.
C- The Japanese government passes a law that will result in a large increase in the taxation of interest payments from Japan to foreigners.
Explanation / Answer
A) I will sell my foreign currency as I wouldn't want to buy the oil reserves as those are very less than touted earlier, therefore, if I buy those, the deal wouldn't be profitable for me.
B) I will sell the foreign currency as, soon it's value would be degraded because if the party works as per their promise, inflation would strike Canada, followed by recession.
C- I will buy foreign currency as soon it's demand would go up due increament in taxes for the tourist.
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