Foreign Exchange Transactions
Response to the following problem:
Assume the country of Neeland has stable and predictable international trade flows with the U.S. Neeland is periodically in the news because its government might have problems repaying its debt owed to local banks. The value of its currency (the "nee") commonly declines on one day, but then jumps back up a few days later. There is much day to day volatility in the value of the nee.
Briefly explain what types of transactions are likely causing the shifts in demand for the nee and supply of nee for sale in the foreign exchange market.