Page 1 - Lesson note-Foreign Exchange (Module-59)

Class XII

Subject- Economics

CHAPTER-11

TOPIC- Determination of Exchange Rate

(MODULE-59)

Short Notes:

Determination of Exchange rate: Flexible exchange Rate is determined by the interaction of
the forces of Demand and supply.

Equilibrium exchange rate: It is determined at a level where demand for foreign exchange is
equal to the supply of foreign exchange.

Changes in Exchange rate:

Change in Demand

1. Increase in demand:
a) Will shift the demand curve to the right
b) Creates a situation of excess demand
c) As a result Exchange rate will rise.
2. Decrease in Demand
a) Will shift the demand curve to the left
b) Creates a situation of deficit demand
c) As a result Exchange rate will fall

Change in supply

1: Increase in supply:

a) Rightward shift of supply curve
b) Creates a situation of excess supply
c) As a result Exchange rate will fall