State four sources of demand for foreign exchange.

Demand for Foreign Exchange (US dollars). Remember, payments in foreign exchange cause demand for foreign exchange. The following factors cause (generate) demand for foreign exchange, i.e., foreign exchange is demanded by domestic residents for the following reasons:
 Sources of demand for foreign exchange:
(i)  To purchase goods and services by domestic residents from foreign countries.
(ii) To purchase financial assets (i.e., to invest in bonds and equity shares) by domestic residents in a foreign country.
(iii) To send gifts and grants abroad.
(iv) To invest directly in shops, factories, buildings in foreign countries.
(v)  To speculate on the value of foreign currencies.
(vi) To undertake foreign tours (or for travelling abroad) and
(vii) To make payments of international trade.
Continuing the above example, Indian people and firms demand US dollars to pay for goods and services they want to import from USA or to purchase assets or invest in US bonds or build factories in USA. Demand for dollars also arises from Indians who want to send gifts to some people in USA. Similarly, Indian students studying in USA or Indians travelling in USA require dollars to meet their education and travelling expenses.