ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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equilibrium exchange rate
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floating exchange rate
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par exchange rate
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both (a) & (c)
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Detailed explanation-1: -The equilibrium exchange rate is the exchange rate at which demand equals supply.
Detailed explanation-2: -Ëquilibrium rate of exchange is determined when the demand for foreign exchange is equal to its supply.
Detailed explanation-3: -Increase in foreign exchange rate leads to rise in supply of foreign exchange.
Detailed explanation-4: -Exchange rates of a currency can be either fixed or floating. Fixed exchange rate is determined by the central bank of the country while the floating rate is determined by the dynamics of market demand and supply.
Detailed explanation-5: -There is an inverse relationship between the rate of foreign exchange and demand for foreign exchange. It means the higher the rate, the lesser will be the demand for foreign exchange and vice-versa. Due to this reason, the demand curve slopes downwards.