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Open Economy Macroeconomics

Question
CBSEENEC12012901
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Explain relation between foreign exchange rate and demand for foreign exchange. Give two reasons.    

Solution
Relationship. There is inverse relation between price of foreign exchange (rate of exchange) and demand for foreign exchange. When exchange rate rises, demand for foreign exchange falls and when exchange rate of foreign currency falls, its demand rises. That is why demand curve for foreign exchange becomes downward sloping signifying the inverse relationship. 

Some More Questions From Open Economy Macroeconomics Chapter

What are the features of Balance of Payment Account?

Describe components of Balance of Payment Account.

What is meant by visible and invisible items in BOP Account? Give two examples of invisible items.

What is balance of trade? 
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BOT shows a deficit of र 5,000 crores and value of imports are र 9,000 crores. What is the value of exports?

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Balance of payment always balances. Comment.

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