Why is a system for exchanging currencies necessary for international trade?(1 point)%0D%0AResponses%0D%0A%0D%0ATo control the global money supply%0D%0ATo control the global money supply%0D%0A%0D%0ATo increase trade barriers%0D%0ATo increase trade barriers%0D%0A%0D%0ATo manage price stability and currency risk%0D%0ATo manage price stability and currency risk%0D%0A%0D%0ATo create a universal method for accurate currency exchange
To facilitate smooth transactions and remove barriers to trade.
chose one of the give option
To manage price stability and currency risk
A system for exchanging currencies is necessary for international trade primarily to create a universal method for accurate currency exchange. This ensures that buyers and sellers from different countries can easily compare and value goods and services in a common currency. The need for a standardized method of exchange arises due to the existence of various national currencies each with their exchange rates. Without such a system, international trade would be more challenging and inefficient.
To understand why this is the case, consider the following explanation:
1. To control the global money supply: This option is incorrect because a system for exchanging currencies does not directly control the global money supply. While central banks and monetary policies play a role in controlling money supply, currency exchange systems are primarily focused on facilitating trade rather than controlling money supply.
2. To increase trade barriers: This option is incorrect as well. A system for exchanging currencies aims to reduce trade barriers, not increase them. By providing a standardized method for converting one currency into another, it enables smooth transactions between countries and encourages international trade.
3. To manage price stability and currency risk: This option is partly correct. A currency exchange system helps manage currency risk by providing exchange rates that reflect market conditions. This allows businesses to hedge against potential currency fluctuations and reduces uncertainty in international transactions. However, price stability is primarily managed through monetary policies and economic factors, rather than currency exchange systems.
4. To create a universal method for accurate currency exchange: This option is the most suitable answer. A system for exchanging currencies provides a universal method for accurately converting one currency into another. It establishes exchange rates based on market conditions and facilitates the smooth flow of international trade by providing a common currency benchmark for valuation and transactions.
In conclusion, the primary purpose of a currency exchange system in international trade is to create a universal method for accurate currency exchange, ensuring efficiency and transparency in cross-border transactions.