3. Objective is to acquaint students about determination of foreign exchange rate in the highly volatile international market. Post globalization foreign exchange rate has assumed all the more significance & evokes unprecedented interest. Foreign exchange rate is neither rigidly fixed nor rigidly flexible in any economy of the world. It is under Govt. regulations & changes if any are minimal in nature.
4. Meaning of Foreign Exchange Rate It is the price of one currency in terms of other. It is the rate at which exports and imports of a nation are valued at a given point in time.
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6. Who needs Foreign Exchange? When people wish to operate in the foreign exchange market they intend to buy or sell foreign exchange depending on their demand for and supply of foreign exchange.
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9. Equilibrium in the Foreign Exchange Market Foreign exchange market like any other market is characterised by a downward sloping demand curve and an upward sloping supply curve. d s e
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11. Price Rs/$ S$ S’$ D’$ D$ Qeq Q’’ Q’ R’ Req R’’ Demand and Supply of US $
12. In this figure the demand curve (D$) is downward sloping. This means that less foreign exchange is demanded as the exchange rate increases.
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14. In this figure the supply curve (S$) is upward sloping which means that supply of foreign exchange increases as the exchange rate increases.
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