What is the relation between depreciation of domestic currency with the supply and demand of foreign exchange
Dear student,
Under a flexible exchange rate regime the exchange rate is determined by the forces of demand and supply. Accordingly, thedepreciation of domestic currency is also dependent on the demand and supply of foreign exchange.
Depreciation of domestic currency takes place in the following conditions:
Under a flexible exchange rate regime the exchange rate is determined by the forces of demand and supply. Accordingly, thedepreciation of domestic currency is also dependent on the demand and supply of foreign exchange.
Depreciation of domestic currency takes place in the following conditions:
- Rise in the demand for foreign currencies with supply remaining same.
- Fall in the supply of foreign currencies with demand remaining same.