(a) Exports of Goods and Services: Supply of foreign exchange comes through exports of goods and services. (b) Tourism: The amount, which foreigners spend in the home country, increases the supply of foreign exchange.
What determines the supply of foreign exchange in a country?
The supply of a currency is determined by the domestic demand for imports from abroad. For example, when the UK imports cars from Japan it must pay in yen (¥), and to buy yen it must sell (supply) pounds. The more it imports the greater the supply of pounds onto the foreign exchange market.
How is exchange rate determined in the foreign exchange market explain Class 12?
Ans. Foreign exchange rate is determined by the market forces of demand and supply in foreign exchange market. The point where demand and supply of foreign exchange meet, gives the equilibrium rate of exchange as shown in figure and quantity of foreign exchange.
Why do we need foreign exchange Class 12?
It is demanded by the domestic residents for the following reasons: (a) Imports of Goods and Services: When India imports goods and services, foreign exchange is demanded to make the payment for imports of goods and services. (b) Tourism: Foreign exchange is demanded to meet expenditure incurred in foreign tours.
Who determines the exchange rate of foreign currency in India?
As regards the two way movement of exchange rate of Indian Rupee, it is advised that the Reserve Bank does not control the foreign exchange rate of Rupee. The exchange rate of the Rupee is largely determined by demand and supply conditions in the foreign exchange market.
What is the relationship between supply for foreign exchange and exchange rate?
Answer: Supply curve of foreign exchange slopes upwards due to positive relationship between supply for foreign exchange and foreign exchange rate, which means that supply of foreign exchange increases as the exchange rate increases.
What is foreign exchange rate determination?
Foreign Exchange Rate is the amount of domestic currency that must be paid in order to get a unit of foreign currency. According to Purchasing Power Parity theory, the foreign exchange rate is determined by the relative purchasing powers of the two currencies.
How the rate of exchange is determined illustrate?
(c) Determination of exchange rate:
Graphically, intersection of demand and supply curves determines the equilibrium exchange rate of foreign currency. At any particular time, the rate of foreign exchange must be such at which quantity demanded of foreign currency is equal to quantity supplied of that currency.
What is the supply curve of foreign exchange?
(b) Supply curve: The major component of the supply of foreign currency is the exports of a country’s goods and services. Higher the exchange rate higher will be the export and supply of foreign exchange. Thus, the supply curve of foreign currency is upward sloping.
What is the features of foreign exchange market?
The features of the foreign exchange market include it’s high liquidity, transparency, dynamism, 24 hour operation, low transaction cost, and a large bias towards towards the US dollar.
What is meant by foreign exchange?
Foreign exchange, or forex, is the conversion of one country’s currency into another. In a free economy, a country’s currency is valued according to the laws of supply and demand. In other words, a currency’s value can be pegged to another country’s currency, such as the U.S. dollar, or even to a basket of currencies.
Who regulates the money supply in India?
The Reserve Bank of India (RBI) is vested with the responsibility of conducting monetary policy. This responsibility is explicitly mandated under the Reserve Bank of India Act, 1934.