When the price of a foreign currency falls, the demand for that foreign currency rises

cbse-class-12

#1

When the price of a foreign currency falls, the demand for that foreign currency rises. Explain why?


#2

Foreign exchange rate has ah inverse relationship with the demand for foreign currency. With a fall in the price of foreign exchange, value of domestic currency increases and that of foreign currency falls. It implies that foreign goods become cheaper and their domestic demand increases. ,
The rising domestic demand for foreign goods implies higher demand for foreign exchange which increases from $OD_1 to OD_2$, when exchange rate falls from $OR_1 to OR_2$, as shown in the figure.
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