explain why supply of foreign currency rises in response to rise in its exchange rate?

1. A rise in the exchange rate will lead to the appreciation of foreign currency in terms of domestic currency. This will lead to greater FDI from rest of the world as one unit of foreign currency coverts into more units of domestic currency and thus supply of foreign currency increases.

2. Also, it will lead to depreciation of domestic currency which would lead to greater exports from domestic economy implying an increased supply of foreign currency.

3. Since exchange rate is rising, remittances from abroad will increase because a unit of foreign currency converts into more units of domestic currency. Accordingly supply of foreign currency rises.

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