Why is a system for exchanging currencies necessary for international trade?
option:
To control the global money supply
To increase trade barriers
To manage price stability and currency risk
To create a universal method for accurate currency exchange
The correct option is: To create a universal method for accurate currency exchange.
A system for exchanging currencies is necessary for international trade because different countries have their own national currencies with different values. When companies or individuals engage in international trade, they need to exchange their domestic currency for the foreign currency of the country they are trading with. This exchange enables them to accurately value goods and services, calculate costs, and facilitate financial transactions.
Without a system for currency exchange, international trade would become challenging and inefficient. It would be difficult to determine the correct value of goods and services in different currencies, resulting in uncertainty and confusion. Additionally, it would be challenging to accurately calculate costs, profits, and financial obligations, leading to discrepancies and potential disputes.
By having a system for currency exchange, international trade becomes more streamlined and standardized. It provides a universal method for converting one currency to another, ensuring that accurate values are used for business transactions. This system helps to manage price stability and currency risk, as fluctuations in currency values can impact the cost of imported goods and the profitability of exports.
Overall, a system for exchanging currencies is necessary for international trade to create a common method that facilitates accurate currency exchange and ensures the smooth flow of goods, services, and financial transactions between different countries.