Page 2 - Lesson note-Foreign Exchange (Module-58)

1: When price of a foreign currency falls, imports from foreign country become cheaper. So,
imports increases ,hence the demand for foreign currency rises

2: When a foreign currency becomes cheaper in terms of domestic currency, it promotes
tourism to that country.

Supply of Foreign Exchange:

1: Export of Goods and Services

2: Foreign Investment

3: Remittance from abroad

4: Speculation

Reason for Rise in Supply for Foreign Currency:

1: When price of a foreign currency rises, domestic good become cheaper. So, it induces the
foreign country to increase their imports from the domestic country. Hence the supply of
foreign currency rises.

2: When price of a foreign currency rises, supply of foreign currency rises as people want to
gain from speculative activities.

Currency depreciation: Refers to decrease in the value of domestic currency in terms of
foreign currency by the market forces
1$=Rs 70

1$=75
Currency appreciation: Refers to increase in the value of domestic currency in terms of
foreign currency by the market forces.

1$=75
1$=Rs 70

Devaluation of currency: Refers to decrease in the value of domestic currency by the
government

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