Question

Discuss any two factors which directly affect the demand for foreign exchange of a nation.

Hint:

Higher imports and increased foreign travel raise the demand for foreign exchange.

Answer 1

The demand for foreign exchange in a nation is influenced by several economic factors. Two key factors are: 1. Imports of Goods and Services:
- When residents import foreign goods, they need to exchange domestic currency for foreign currency, increasing demand for foreign exchange. 2. Tourism and Foreign Travel:
- When individuals or businesses travel abroad, they require foreign currency for expenses, accommodation, and business activities, increasing demand for foreign exchange. Conclusion: The demand for foreign exchange rises when international transactions require payments in foreign currency.