Question

Select the correct code for the term ‘hard currency’:
1. Currency of the economy with huge current account surplus.
2. Currency of the economy having high technology exports, which are compulsory imports for most of the world economies.
3. The currency, which is given such a nomenclature by the IMF.

• A. Only 1 and 2
• B. Only 2 and 3
• C. Only 1 and 3
• D. All of the above

Answer 1

The correct option is B Only 2 and 3

Explanation: A currency, usually from a highly industrialized country, that is widely accepted around the world as a form of payment for goods and services. A hard currency is expected to remain relatively stable through a short period of time, and to be highly liquid in the forex market. Another criterion for a hard currency is that the currency must come from a politically and economically stable country. The U.S. dollar and the British pound are good examples of hard currencies. A currency with a value that fluctuates as a result of the country’s political or economic uncertainty. As a result of the of this currency’s instability, foreign exchange dealers tend to avoid it. It is also known as a “weak currency”. Currencies from most developing countries are considered to be soft currencies. Often, governments from these developing countries will set unrealistically high exchange rates, pegging their currencies to a currency such as the U.S. dollar.