Quick Answer: How is foreign currency determined Class 12?

Answer: Exchange rate in a free exchange market is determined at a point, where demand for foreign exchange is equal to the supply of foreign exchange. Let us assume that there are two countries – India and U.S.A – and the exchange rate of their currencies i.e., rupee and dollar is to be determined.

How is foreign currency value determined?

Supply and demand are influenced by a number of factors, including interest rates, inflation, capital flow, and money supply. The most common method to value currency is through exchange rates. The two main exchange rate systems are fixed rate and floating rate systems.

How is foreign exchange rate determined in the market class 12?

Ans. Foreign exchange rate is determined by the market forces of demand and supply in foreign exchange market. The point where demand and supply of foreign exchange meet, gives the equilibrium rate of exchange as shown in figure and quantity of foreign exchange.

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What determines the supply of foreign exchange in a country Class 12?

(a) Exports of Goods and Services: Supply of foreign exchange comes through exports of goods and services. (b) Tourism: The amount, which foreigners spend in the home country, increases the supply of foreign exchange.

How is foreign currency defined?

The currency of any foreign country which is authorized medium of circulation and the basis for record keeping in that country. Foreign currency is traded by banks either by the actual handling of currency or checks, or by establishing balances in foreign currency with banks in those countries.

What factors determine currency value?

4 Economic Factors that Can Impact Your Currency Value

  1. Interest Rates. The first factor contributing to the general strength or weakness of a currency is a country’s interest rate. …
  2. Inflation. …
  3. Economic Growth. …
  4. Current Account Balance.

How do we calculate currency?

Multiply the money you’ve budgeted by the exchange rate. The answer is how much money you’ll have after the exchange. If “a” is the money you have in one currency and “b” is the exchange rate, then “c” is how much money you’ll have after the exchange. So a * b = c, and a = c/b.

How is foreign exchange rate determined under free exchange market?

In a free-floating exchange rate system, exchange rates are determined by demand and supply. Exchange rates are determined by demand and supply in a managed float system, but governments intervene as buyers or sellers of currencies in an effort to influence exchange rates.

What determines the supply of foreign exchange in a country?

The supply of a currency is determined by the domestic demand for imports from abroad. For example, when the UK imports cars from Japan it must pay in yen (¥), and to buy yen it must sell (supply) pounds. The more it imports the greater the supply of pounds onto the foreign exchange market.

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When exchange rate of foreign currency rises its supply rises how explain?

When price of a foreign currency rises, domestic goods become relatively cheaper. It induces the foreign country to increase their imports from the domestic country. As a result, supply of foreign currency rises.

Why foreign currency is required explain?

Foreign exchange is also important when a country is investing in another. If the US is investing in India, it has to invest in rupees. Such transactions create a demand for foreign exchange. This is why the foreign exchange market is important.

What are the causes of currency depreciation Class 12?

What Is Currency Depreciation?

  • Currency depreciation is a fall in the value of a currency in a floating exchange rate system.
  • Economic fundamentals, interest rate differentials, political instability, or risk aversion can cause currency depreciation.

How is currency value determined Wiki?

The local currency is determined by the supply and demand relationship of the foreign exchange market, and it is free to rise and fall.