Q. Which of the following is the most definitive characteristic of a Soft Currency?

[A] It is a currency whose value is permanently pegged to a hard currency like the US Dollar.

[B] It is a currency that is easily available in its domestic foreign exchange market, typically because demand for it in international markets is relatively low.

[C] It is a currency that is undergoing a period of rapid depreciation against major global currencies.

[D] It is a currency that is used for transactions only in the current account but not in the capital account.

Answer: B
Notes:

Explanation:

A soft currency is a term used in the foreign exchange market which denotes the currency that is easily available in any economy in its forex market. It is essentially the opposite term for the hard currency, which is always scarce. The easy availability suggests low international demand/high domestic supply relative to demand. For example, the rupee is a soft currency in the Indian forex market.

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