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The currency board refers to a monetary authority that supplies domestic currency and, at the same time, maintains a fixed exchange rate with a foreign currency. Also, the domestic or base currency is fully backed by the forex reserves. It is an option for countries preferring pegged exchange regimes.

Speculation in currencies can also be quite risky, as it involves the expectation of profiting from the changing of a currency's value with respect to another currency. A nation's central bank can greatly affect the value of its currency with respect to other currencies through its monetary policy.

Currency speculators buy and sell currencies in the hopes of making a profit off of the changes in value. While there is no guarantee that currency speculation will be successful, it can be a way to make a quick profit. However, it is also a risky investment, as currencies can fluctuate rapidly and unexpectedly.

A speculative attack primarily targets currencies of nations that use a fixed exchange rate and have pegged their currency to a foreign currency, such as Hong Kong pegging the Hong Kong Dollar (HK$) to the United States Dollar (US$) at an exchange rate of HK$7.8 to US$1; generally the target currency is one whose fixed ...

Another way to predict currency exchange rates is to use the purchasing power parity (PPP) theory. This theory states that the exchange rate between two currencies should equalize their purchasing power in terms of a common basket of goods and services.

All currency trading is done in pairs. Unlike the stock market, where you can buy or sell a single stock, you have to buy one currency and sell another currency in the forex market. Next, nearly all currencies are priced out to the fourth decimal point. A pip or percentage in point is the smallest increment of trade.

Real World Example of a Currency Board Hong Kong's currency board has a 100% reserve requirement, so all Hong Kong dollars are fully backed with U.S. dollars.1 While the currency board contributed to Hong Kong's trade with the U.S., it also worsened the impact of the 1997 Asian financial crisis.