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Question
Explain the relationship between foreign exchange rate and supply of foreign exchange.
Distinguish Between
Explain
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Solution
| Situation | Effect on Foreign Exchange Rate | Impact on Supply of Foreign Exchange |
| Domestic currency depreciates (weaker) | Exchange rate rises (foreign currency becomes more valuable) | Supply of foreign exchange increases (as exports and remittances rise) |
| Domestic currency appreciates (stronger) | Exchange rate falls (foreign currency becomes less valuable) | Supply of foreign exchange decreases (as exports become costlier for foreigners) |
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