When the price of a foreign currency rises, its supply also rises. Explain why?
Rise in exchange rate of a foreign currency refers to appreciation of foreign currency in relation to domestic currency.
It causes a rise in supply of foreign currency owing to the following situations:
(i) It induces greater Foreign Direct Investment (FDI).
(ii) Appreciation of foreign currency induces greater exports from the domestic economy.
(iii) Appreciation of foreign currency increases direct purchase by the non-residents in the domestic economy.
(iv) It also increases remittances from abroad.