Sources of Demand and Supply of Foreign Exchange Class 12

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See, this topic is concerned with the Foreign Exchange Chapter of Macroeconomics Class 12.

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What are the sources of Demand of Foreign Exchange

See, the individuals of a country demands foreign exchange when they want to purchase goods and services from the rest of the world.

For example, If one wants to purchase goods from the US. He has to first convert its native currency into the US dollar.

Then he would be able to purchase goods from the US after making payments in Dollars.

Following are the sources of demand of foreign exchange.

1 For importing goods and services.

2. For making transfer payments in the form of gifts, donations, cash remittances to families, etc.

3. For making income payments in the form of profits, dividends, interest, compensation of employees, etc.

4. For making investments abroad in financial and physical assets.

5. For lending money and for making repayments to foreign countries.

There are many sources of supply of foreign exchange. These are broadly classified into the following.

1 From exporting goods and services.

2. From transfers payments in the form of gifts, donations, cash remittances by families, etc.

3. From income receipts in the form of profits, dividends, interest, compensation of employees, etc.

4. From investments in financial and physical assets made by the rest of the world.

5. From borrowing money and receiving repayments from foreign countries.