Question

Short Answer Type Questions:
What is meant by foreign exchange rate? Why does a rise in foreign exchange rate cause a rise in its supply?

Answer 1

Foreign exchange rate is the rate of domestic currency which can be exchanged for foreign currency. Some economists refer to it as the external value of the domestic currency.

The foreign exchange rate and supply of foreign exchange is positively related and it is upward sloping curve as because the components of supply of foreign exchange rise as foreign exchange rate rises. For example exports rise as the foreign exchange rate rises.