Explain hard and soft currencies in 1250 wordsSolutionThere

Explain hard and soft currencies in 1,250 words.

Solution

There are two types of currencies available in the market which is utilized for the business and exchange operations. Those include soft currency and hard currency. When the case of the currencies is taken into consideration some of the factors like the political stability, fiscal and monetary policies of the nations plays a vital role in the value and the strength of the currency.

Soft currency is the currencies whose value is not stable and varies depending on the economical and political situation of the country. As a result of these fluctuations the value of the currency may either increase or decrease. Hard currencies are highly accepted by the industries throughout the world as it is more stable and its value does not fluctuate based on the changes in the political situation of the nation.

Hard currencies are widely used as the payment or exchange options during the foreign investment and international business as its value is expected to be stable during a specific short period of time. Hard currency is normally stated as strong currency and has a stable purchasing power when compared to that of a soft currency. Some of the hard currencies includes US dollar, Euro etc which are very strong and faces less fluctuations. The international traders feel these currieries as the safest and risk free payment methods. Some of the other features of the hard currency includes high liquidity, free and easy convertibility etc. These features make such currencies more attractive for the business operations. If during the tough times the investors prefer such currencies it is sure that they can receive sufficient returns from their investment.

Soft currencies belong to the nations which are of poor and instable political situations. Investing in such nations and currencies will cause loss for the organizations as the value of the currency fluctuates very frequently and unexpectedly.