give two reason for a rise in demand for foreign currency when its price in terms of domestic currency falls

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Solution

Hey Radhika,

(a) A fall in the price of foreign currency implies that foreign goods become cheaper in relation to domestic goods. Thus, there is a increase in demand for foreign goods implying higher demand for foreign exchange.
(b) When the price of foreign currency falls, tourists from the home country find it cheaper to visit abroad. Thus, demand for foreign currency rises.

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Similar questions

State any two factors that explain expansion of demand for a foreign currency in response to a fall in its price (in terms of the domestic currency).

State any two factors that explain the contraction of supply of foreign currency when its price in terms of the domestic currency falls.

(a) Balance of payment always balances. Explain.

(b) When the supply of foreign currency rises, the price of foreign currency falls. Justify the statement.

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