Question

When selling a fixed amount of a base currency to purchase a counter currency, which of the following factors is primarily used to determine how much of the counter currency the customer will receive?

A. the spot exchange rate
B. the counter currency's inflation rate
C. the trade balance between the two countries
D. the credit rating of the counter currency's government

Answer 1

The spot exchange rate is primarily used to determine how much of the counter currency the customer will receive when selling a fixed amount of a base currency. Other factors such as inflation rate, trade balance, and credit rating can also influence the exchange rate.

Step-by-step explanation:

In foreign exchange markets, when selling a fixed amount of a base currency to purchase a counter currency, the spot exchange rate is primarily used to determine how much of the counter currency the customer will receive. The spot exchange rate is the current market rate at which one currency can be exchanged for another. It is determined by the supply and demand for the currencies in the market.

Factors such as counter currency's inflation rate, the trade balance between the two countries, and the credit rating of the counter currency's government can also influence the exchange rate, but the primary factor used to determine the amount of counter currency received is the spot exchange rate.