Question

Why is the demand curve for foreign exchange negatively sloped?

Answer 1

Demand for foreign exchange has a negative sloping demand curve since the rate of foreign exchange inversely relates to demand for foreign exchange. Foreign goods get more expensive for domestic consumers as the value of the local currency depreciates; this lowers the demand of foreign exchange; conversely, when the domestic currency appreciates, foreign goods become cheaper for domestic consumers, so increasing the demand for foreign currency.