ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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repayment of international loans
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investment in rest of the world
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both
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None of the above
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Detailed explanation-1: -Investment outflows and repayment of international loans are sources of demand for foreign currency.
Detailed explanation-2: -The supply of foreign exchange depends on the country’s import of goods & services to foreign countries. 21.
Detailed explanation-3: -Demand for foreign exchange arises when people want to speculate on the value of foreign currency. Speculators demand foreign currency in the present period with the aim of selling it in future at higher prices.
Detailed explanation-4: -interest rate, exchange rate, return on deposits.
Detailed explanation-5: -Two sources of demand or outflow of foreign exchange are: 1)Imports: It requires foreign exchange because payments for imports are made in foreign exchange only. 2)Foreign Investment: Investment in rest of the world is an important business activity. We need foreign currency in which investment is to be made.