Explain why there is a rise in demand for foreign exchange when i… - Vidyadip

Question

Explain why there is a rise in demand for foreign exchange when its price falls.

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Answer

When price of a foreign currency falls, imports from that foreign country become cheaper. So, imports increase and hence, the demand for foreign currency rises. For example, if price of 1 US dollar falls from ₹ 79 to ₹ 77, then imports from USA will increase as American goods will become relatively cheaper. It will raise the demand for US dollars.

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