Why do people demand foreign exchange class 12? (2024)

Why do people demand foreign exchange class 12?

The demand for foreign currency rises because of the appreciation of domestic currency (it can also be said that there is a depreciation in the price of foreign currency). Appreciation of domestic currency refers to an increase in the value of the domestic currency in comparison to foreign currency.

People demand foreign exchange because, they want to buy commodities and services from other nations; they want to send presents abroad and they want to buy financial assets of a particular nation.

The foreign exchange market involves firms, households, and investors who purchase foreign goods, services and assets (or who sell goods, services and assets to foreigners). As a result, they demand (or supply) foreign currencies in order to complete their transactions.

Demand for Foreign Exchange: People require foreign exchange because they want to buy goods and services from other countries, send gifts abroad, and buy financial assets from a specific country. The demand for foreign exchange falls as the flexible exchange rate rises and vice versa.

To help keep the value of a domestic currency at a fixed rate. China pegs the value of the yuan to the US dollar. By stockpiling dollars it raises the dollar value versus the yuan thereby increasing sales by making Chinese exports cheaper than American-made goods. To keep a domestic currency lower than the dollar.

The foreign exchange market's basic function is to transfer funds or foreign currencies between countries to settle their payments. The market converts one currency into another. The foreign exchange market also provides short-term loans to people or businesses who need to buy things from other countries.

The demand for foreign-currency denominated assets is in turn affected by the expected returns on those assets, the risks of those assets as well as the liquidity of those assets, all relative to domestic assets.

What are the three major reasons for people to purchase foreign currency? People want foreign money for travel and tourism. Foreign money is needed for trade to buy foreign goods and services. Foreign money is needed for investment purchases.

Foreign exchange is demanded for the purpose of: i Payments of international loans. ii Gifts and grants to rest of the world. iii Investment in rest of the world. iv Direct purchases abroad as well as imports from rest of the world.

Why the demand for foreign exchange and the exchange rate have an inverse relationship?

When foreign exchange rate rises imports become costly for the domestic consumers. This reduces demand for imports causing fall in demands for foreign exchange When foreign exchange rate falls opposite happens. Import become cheaper and in turn raising demand for foreign exchange.

i With a fall in price of foreign exchange the exchange value of domestic currency increases and that of foreign currency falls and foreign goods become cheaper in relation to domestic goods. The rising domestic demand of foreign goods implies higher demand for foreign exchange.

An increase in the demand for a currency creates a rightward shift of the demand curve, ultimately causing a rise in the exchange rate and increasing the value of the currency demanded. Conversely, a fall in demand would shift the demand curve left and lead to a decline in the currency value.

Forex trading offers several advantages over other markets, such as flexibility with types of contracts and 24 hours a day trading for five days a week. It also allows investors to leverage their trades by 20 to 30 times, which can magnify gains. On the downside, this leverage can also lead to major losses fast.

People with different budgets and risk appetites can trade on the forex market. Additionally, it offers advantages such as low transaction costs, flexibility, trading options, and leverage.

The foreign exchange market serves two main functions. These are: convert the currency of one country into the currency of another and provide some insurance against foreign exchange risk.

Foreign exchange, also known as forex, is the conversion of one country's currency into another. The value of any particular currency is determined by market forces related to trade, investment, tourism, and geopolitical risk.

The foreign exchange market is decentralised and there is no organisation that controls it. However, commercial banks act as market makers, and central banks have significant powers and can influence the market.

However, the foreign exchange market is unique in two ways: A currency is being bought and sold, rather than a good or service. The currency being bought and sold is being bought with a different currency.

A strong dollar allows U.S. consumers to purchase goods and services from overseas for less than if the dollar was weaker. It also helps compensate for rising inflation by keeping purchasing power from dropping too much.

What is the strongest currency in the world?

The Kuwaiti dinar continues to remain the highest currency in the world, owing to Kuwait's economic stability. The country's economy primarily relies on oil exports because it has one of the world's largest reserves. You should also be aware that Kuwait does not impose taxes on people working there.

Kuwaiti Dinar or KWD has been crowned the highest currency in the world. It is widely used in the Middle East for oil-based transactions. 1 Kuwaiti Dinar is equal to 269.76 INR.

Iranian Rial

The Iranian Rial is the least valued currency in the world. It is the lowest currency to USD. For the simplification of calculations, Iranians regularly use the term 'Toman'. 1 Toman equals 10 Rials.

Prior to 1971, the US dollar was backed by gold. Today, the dollar is backed by 2 things: the government's ability to generate revenues (via debt or taxes), and its authority to compel economic participants to transact in dollars.

Currency supply and demand are influenced by various economic, political, and social factors. These factors include inflation rates, interest rates, economic growth, political stability, and geopolitical events.