Open Economy Macroeconomics
(i) A rise in foreign exchange rate makes home country's (say, India's) goods cheaper to foreigners. As a result demand for Indian goods increases leading to increase in India's exports. This brings a greater supply of foreign exchange, (ii) Again a rise in foreign exchange rate renders home country's currency cheaper which attracts foreigners and promotes tourism to home country (say, India). This also raises supply of foreign exchange.
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