Economics 3 Marks Question

1. The demand for foreign currency increase with the rise in foreign exchange rate. Such a rise in the foreign exchange rate implies depreciation in domestic currency.
2. This leads to encouragement in exports from a country and discourages imports from the rest of the world as the residents of the country have to pay more to buy foreign goods.

Balance of payments refers to systematic records of all economic transactions between the residence of a country and the residence of foreign countries during a given period of time, particularly one year.
Balance of payments broadly comprises the following:
i. Current Account- Current Account is that account which records imports and exports of goods and services and unilateral transfer.
ii. Capital Account- Capital Account is that account that records all such transactions between residents of a country and rest of the world which results in a change in the asset or liability status of the residents of a country and government. For example Borrowing