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Open Economy Macroeconomics — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsOpen Economy Macroeconomics3 Marks
Question
Define foreign exchange rate. Why does the demand for foreign exchange rise when its price falls?
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Answer

It is the price of foreign currency in terms of domestic currency.

A fall in price of foreign currency in terms of domestic currency means foreign currency becomes cheaper. This would encourage more imports as imports become cheaper. So demand of foreign currency increase.

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