ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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true
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false
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Either A or B
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None of the above
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Detailed explanation-1: -Ans: False. Because greater flow of foreign exchange may be occurring on account of borrowings from rest of the world.
Detailed explanation-2: -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-3: -Ans. With a fall in price of foreign exchange, the exchange value of domestic currency increase and that of foreign currency falls. This implies that foreign goods becomes cheaper and their domestic demand increases. The rising domestic demand for foreign goods implies higher demand for foreign exchange.
Detailed explanation-4: -Demand for foreign exchange also depends upon payments of international loans. Balance of trade includes both visible and invisible items. Balance of trade is a part of the Balance of payments. Devaluation is declared by the government.
Detailed explanation-5: -Foreign exchange is demanded for the purpose of: i Payments of international loans. ii Gifts and grants to rest of the world. iii Investment in rest of the world. iv Direct purchases abroad as well as imports from rest of the world.