Question

What are the different factors that affect the supply of foreign exchange?

Hint:

Exports, investment inflows, and remittances are key contributors to the supply of foreign exchange.

Answer 1

Step 1: Understanding the supply of foreign exchange.
The supply of foreign exchange refers to the amount of foreign currency available for exchange in an economy, primarily driven by factors such as exports, remittances, and foreign investment.
Step 2: Key factors affecting supply of foreign exchange.
- **Exports:** The greater the exports of a country, the higher the supply of foreign currency, as foreign buyers exchange their currency for local goods. - **Foreign Direct Investment (FDI):** Investments from foreign entities increase the supply of foreign exchange. - **Remittances:** Money sent by nationals working abroad increases the supply of foreign exchange. - **Government Policies:** Policies related to trade, tariffs, and foreign exchange controls can either encourage or restrict the flow of foreign exchange. - **Interest Rates and Economic Stability:** Higher interest rates attract foreign investment, which increases the supply of foreign exchange. Economic stability also encourages inflows of foreign capital.
Step 3: Conclusion.
Thus, the supply of foreign exchange is influenced by exports, foreign investment, remittances, government policies, and the overall economic environment. Final Answer: \[ \boxed{\text{The supply of foreign exchange is influenced by exports, foreign investment, remittances, policies, and economic stability.}} \]