Page 2 - Lesson note-Foreign Exchange (Module-59)

2: Decrease in supply:

a) Leftward shift of supply curve
b) Creates a situation of deficit supply
c) As a result Exchange rate will rise.

Foreign Exchange Market: Refers to a market in which foreign currencies are bought and
sold.

Function of Foreign Exchange Market:

1: Transfer Function: It transfers purchasing power between the countries involved in the
transaction

2:Credit Function: It provides credit for foreign trade.

3: Hedging Function: When exporters and importers enter into an agreement to sell and buy
good on some future date at the current prices and exchange rate is called hedging

Kinds of Foreign Exchange Market:

Spot Market: Refers to the market in which receipt and payment are made immediately

Forward market: Refers to the market in which sale and purchase of foreign currency is
settled on a specific future date at a rate agreed upon today.