Question

J. Explain the concept of determination of equilibrium foreign exchange rate?
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Answer 1

Answer:

Graphically, intersection of demand and supply curves determines the equilibrium exchange rate of foreign currency. ... The reason is that rise in the price of foreign exchange (dollar) increases the rupee cost of foreign goods which makes them more expensive. The result is fall in imports and demand for foreign exchange.

Answer 2

• equilibriumequilibrium foreign exchange rate is the rate at which demand and supply of foreign exchange at equal and a free market situation it is determined by the market for example demand and supply of foreign exchange there is an inverse relation between demand for foreign exchange and exchange rate their the district relationship between supply of foreign exchange and exchange rate due to above reason demand curve downward sloping and slope curve is upward sloping graphically intersections of demand curve and supply the determined the equilibrium of foreign exchange rate