State Any Two Factors That Explain Extension f Demand For a Currency in Response to a Fall in Its Price?

Question

State Any Two Factors That Explain Extension Of Demand For a Currency in Response to a Fall in Its Price?

Answer 1

Two factors that explain extensions of demand for in currency in response to a fall in its price are follows :

(i) When foreign currency (say US dollar) becomes cheaper (in relation to the domestic curreny), we get more dollars per unit of our currency. Accordingly, imports becomes lucrative. This raises demand for foreign currency.

(ii) When Foreign Currency becomes cheaper, domestic investors will be induced to make greater investment in rest of the World. Accordingly, demand for foreign currency rises.