ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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rise
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fall
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no change
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None of the above
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Detailed explanation-1: -The foreign exchange rate and supply of foreign exchange is positively related and it is upward sloping curve as because the components of supply of foreign exchange rise as foreign exchange rate rises. For example, exports rise as the foreign exchange rate rises.
Detailed explanation-2: -On the supply side, an increase in the supply of a currency will shift the supply curve to the right, ultimately creating a new intersection for supply and demand and a lower exchange rate for the currency.
Detailed explanation-3: -Increase in foreign exchange rate leads to rise in supply of foreign exchange.
Detailed explanation-4: -Ans. Increase in foreign direct investment will result in more supply of foreign exchange therefore, due to excess supply, price of foreign exchange will fall. i.e. exchange rate falls which leads to appreciation of domestic currency.