ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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negatively related to the rate of exchange
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proportionately related to rate of exchange
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positively related to rate of exchange
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not related to rate of exchange
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Detailed explanation-1: -The negatively sloped demand curve (DD) shows that more foreign exchange (OQ1) is demanded at a low rate of exchange (OR1), whereas, demand for US dollars falls to OQ2 when the exchange rate rises to OR2.
Detailed explanation-2: -The demand for foreign exchange varies inversely with the exchange rate.
Detailed explanation-3: -The demand and supply model for currency shows the relationship between quantity demanded and the exchange rate or price for the currency. The demand curve for dollars slopes downward because foreigners demand a greater quantity of dollars as the local currency depreciates in value.
Detailed explanation-4: -Demand curve is downward sloping (due to the inverse relationship between exchange rate and the demand for foreign exchange).
Detailed explanation-5: -When foreign exchange rate rises imports become costly for the domestic consumers. This reduces demand for imports causing fall in demands for foreign exchange When foreign exchange rate falls opposite happens. Import become cheaper and in turn raising demand for foreign exchange.