Final answer:
Transactions in the interbank market primarily affect currency prices, influenced by currency supply and demand, interest rates, and speculation in the short term.
Step-by-step explanation:
Interbank Market and Currency Price Movements
Transactions in the interbank market directly impact the prices of currencies. The supply and demand of a currency, influenced by factors such as domestic interest rates and macroeconomic conditions, can cause these movements. Central banks are particularly concerned about exchange rates because significant fluctuations can affect aggregate demand and international trade, potentially leading to economic instability. High demand for a currency often correlates with high domestic interest rates as investors seek higher returns, thereby strengthening that currency.
Speculation in the short term can create a self-fulfilling prophecy where currencies expected to appreciate actually do so. Conversely, if a country's economic outlook is poor or interest rates are low, demand for that currency may decrease, weakening it in the exchange market.