Answer to Question #92200 in Macroeconomics for Abkaa

Question

Can determination of foreign exchange rate be found by change in demand or supply method i.e. without changing price? Plz give the solution of this answer also if it can be determined without this chge in price

Answer 1

Foreign exchange rates are basically determined by the demand and supply of a particular currency as compared to other currencies.This is determined at a point where demand for and supply of foreign exchange are equal. Graphically, intersection of demand and supply curves determines the equilibrium exchange rate of foreign currency. At any particular time, the rate of foreign exchange must be such at which quantity demanded of foreign currency is equal to quantity supplied of that currency.