ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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positive
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negative
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Either A or B
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None of the above
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Detailed explanation-1: -The supply of foreign exchange varies positively and directly with the exchange rate.
Detailed explanation-2: -(v) Appreciation of foreign currency increases remittances from abroad. A unit of foreign currency converts into more units of the domestic currency. Accordingly, supply of foreign currency rises.
Detailed explanation-3: -The answer is C. The supply curve is based off of the domestic demand for imports. As the demand for imports increases the supply of the countries currency onto the foreign exchange market increases. So the supply of currency onto the foreign exchange market is derived off of the net capital outflow.
Detailed explanation-4: -As the price of a foreign currency increases, the quantity supplied of that currency increases. Exchange rates are determined just like other prices: by the interaction of supply and demand. At the equilibrium exchange rate, the supply and demand for a currency are equal.