Why is foreign exchange demanded?

1. When price of a foreign currency falls, imports from that foreign country become cheaper. So, imports increase and hence, the demand for foreign currency rises. For example, if price of 1 US dollar falls from Rs 50 to Rs 45, then imports from USA will increase as American goods will become relatively cheaper.

Why is foreign exchange demanded Class 12?

It is demanded by the domestic residents for the following reasons: (a) Imports of Goods and Services: When India imports goods and services, foreign exchange is demanded to make the payment for imports of goods and services. (b) Tourism: Foreign exchange is demanded to meet expenditure incurred in foreign tours.

What is the demand for foreign currency?

The Demand for Foreign Exchange

Generally, the demand for foreign currency arises from the traders who have to make payments for imported goods. If a person wants to invest his capital in foreign countries, he requires the currency of that country.

Who demands foreign exchange?

The law of demand holds: as the price of a foreign currency increases, the quantity of that currency demanded will decrease. Foreign currencies are supplied by foreign households, firms, and governments that wish to purchase goods, services, or financial assets denominated in the domestic currency.

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Why does demand for foreign exchange rises when its price falls?

When price of a foreign currency falls, imports from that, foreign, country become cheaper. So, imports increase and hence, the demand for foreign currency rises.

Why does demand for foreign exchange arise for speculative activities?

Textbook solution. When price of a foreign currency falls, its demand rises as more people want to make gains from speculative activities. When a foreign currency becomes cheaper in terms of the domestic currency, it promotes tourism to that country.

What is foreign currencies why it is used explain?

The foreign currency or foreign exchange market is a decentralized worldwide market in which currencies are traded. It was created in order to facilitate the flow of money derived from international trade.

Why does supply of foreign exchange fall with price?

Answer: When price of foreign exchange rises, import becomes costlier, demand for imports will fall. As a result demand for foreign currency falls. When price of foreign exchange rises, domestic goods become cheaper for foreign buyers, because they can now buy more from one unit of foreign currency….