International Economics

Choose the Correct Answer

Correct Answer : Option d

Explanation
Statement 1 is not correct: Demand for foreign currency is made by the importers to make payment for imports and by the people who wish to go abroad. Just as the demand for a commodity is affected by its price, the demand for foreign currency is also affected by its price. For example, if the price of the British pound in terms of Indian Rupee falls, its demand may rise. And if its price rises, its demand may fall. Thus like the demand curve of a commodity, the demand curve for foreign currency is downward sloping from left to right.

Statement 2 is not correct: Foreign currencies are also like commodities. The supply of a foreign currency is affected by its price in the same way as the supply of a commodity is affected by its price. A rise in its price leads to a rise in its supply and a fall in its price leads to a fall in its supply.