Why is a system of currency exchange necessary for international trade?

• A. Because countries use different currencies, a system of exchange allows buyers and sellers to convert one currency to another, facilitating transactions.
• B. Because currency exchange systems set the prices of goods in all countries.
• C. Because international trade only occurs when countries have the same currency.
• D. Because currency exchange eliminates all risks associated with international trade.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the role of currency in international trade. Each country typically has its own currency, which is used for domestic transactions within that country.
2. Step 2: Recognize that when buyers and sellers from different countries engage in trade, they need a way to convert their own currency into the currency of the other party to complete the transaction.
3. Step 3: Identify that a system of currency exchange provides the mechanism to convert one currency into another, enabling buyers and sellers to agree on prices and make payments despite using different currencies.
4. Step 4: Note that without a currency exchange system, it would be difficult or impossible to conduct international trade efficiently because parties would not be able to easily convert currencies to pay for goods and services.
5. Step 5: Conclude that the necessity of a currency exchange system arises from the existence of multiple currencies worldwide, and it facilitates international trade by allowing currency conversion between trading partners.