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Question: Describe the difference between a freely convertible currency and a non-convertible currency.

04 Oct 2022,1:35 PM

 

Analysis of Foreign Exchange Market

The foreign exchange market is an international monetary system that among several of its functions, converts one country's currency into that of another. Understanding the foreign exchange market is an important dynamic in international trade and investment. It is, therefore, a benefit to the business student, via this assignment, to fully comprehend its functions. Assignment Steps Develop a minimum 700-word analys​‌‍‍‍‌‍‍‌‍‌‌‌‍‍‌‍‍‌‌‍​is to include the following aspects of the foreign exchange market: Discuss the two main functions of the foreign exchange market. Analyze, in detail, the relationship between money supply and inflation. Describe the difference between a freely convertible currency and a non-convertible currency. Evaluate the technology risks associated with the functions of the foreign exchange market. Format your assignment consistent with APA guidelines​‌‍‍‍‌‍‍‌‍‌‌‌‍‍‌‍‍‌‌‍​.

 

Expert answer

 

A freely convertible currency is one that can be bought and sold on the foreign exchange market without any restrictions. A non-convertible currency, on the other hand, is subject to restrictions and cannot be easily traded on the open market.

 

There are a number of reasons why a country may choose to have a non-convertible currency. For example, a country may want to keep its currency pegged to another currency in order to maintain stability or prevent inflation. Alternatively, a country may want to limit the amount of foreign currency that enters its economy in order to avoid destabilization.

 

 

While a freely convertible currency may be more convenient for travelers and businesses, a non-convertible currency can have benefits for a country's economy. For instance, by keeping its currency pegged to another currency, a country can avoid sudden swings in its exchange rate. This can help to stabilize the economy and prevent inflation.

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