ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Export of goods and services
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Import of goods and services.
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Export of goods and services and capital inflows.
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Import of goods and services and capital outflows.
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Detailed explanation-1: -The supply of a currency is determined by level of domestic demand for / expenditure on imported goods and services from abroad. It is also influenced by speculative outflows of a country’s currencies on the foreign exchange markets.
Detailed explanation-2: -Imports of goods and services result in demand for foreign currency in the foreign exchange market. Domestic buyers often want to pay using domestic currency, while the foreign sellers want to receive payment in their currency.
Detailed explanation-3: -A floating rate is determined by the open market through supply and demand on global currency markets. Therefore, if the demand for the currency is high, the value will increase. If demand is low, this will drive that currency price lower.
Detailed explanation-4: -Foreign Loans. Foreign Direct Investment. Private Remittances. Portfolio Investment.