IB International Economics Higher Level (HL) Practice Exam

The foreign exchange market is specifically designated for the exchange of one currency for another. This market facilitates international trade and investment by allowing businesses and individuals to convert their national currencies into foreign currencies as needed. Such conversions are essential for transactions involving goods and services that cross international borders, as well as for investment purposes when transferring capital between countries.

In contrast, the commodity market focuses on the buying and selling of physical goods like oil, gold, or agricultural products, rather than currencies. The domestic market pertains to the trade of goods and services within a single country's borders and does not involve the exchange of currencies. The stock market is a platform for buying and selling shares of publicly traded companies and does not play a role in currency exchange. Thus, the defining characteristic of the foreign exchange market—a marketplace dedicated solely to currency exchange—makes it the correct answer.