What is a speculative attack in economics?
In a speculative attack, when agents believe that a currency will be devalued in the near future, the strategy followed, to hedge against this currency or to speculate against it, is to go short in the currency.
What causes a speculative attack?
A speculative attack occurs in the foreign exchange markets when speculators attack the currency of a country attempting to maintain a fixed, or pegged exchange rate. If the country does not hold enough foreign currency reserves to buy enough of its domestic currency, the attack can result in the peg failing.
What is currency speculation with example?
Currency speculation exists whenever someone buys a foreign currency, not because she needs to pay for an import or is investing in a foreign business, but because she hopes to sell the currency at a higher rate in the future (in technical language the currency "appreciates").
How does speculation occur in the foreign exchange market what is a speculative attack?
A speculative attack in the foreign exchange market is the massive and sudden selling of a nation's currency, and can be carried out by both domestic and foreign investors.