Question

A soft currency is one that is expected to _______ in value relative to other currencies.
1. reduce
2. dynamic
3. increase
4. constant

Answer 1

Correct Answer - Option 1 : reduce

The correct answer is to reduce.

• A soft currency is expected to reduce in value relative to other currencies.
  • A soft currency is one with a value that fluctuates, predominantly lower relative to other currencies.
  • It reduces because there is less demand for that currency in the forex markets. 
  • A soft currency struggles to maintain its value against other currencies.
  • This happens because traders and investors seek to hold other currencies more than the soft currency. 
  • This weak demand is most often a result of the country's political or economic instability, which in turn makes the price of the currency more volatile.
  • In financial markets, analysts and traders will also refer to a soft currency as a "weak currency."
  • Currencies from most developing countries are considered to be soft currencies.