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Open Economy Macroeconomics — Economics STD 12 Commerce — Question

CBSE BoardEnglish MediumSTD 12 CommerceEconomicsOpen Economy Macroeconomics3 Marks
Question
When exchange rate of foreign currency rises, its supply rises. How? Explain.
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Answer

When exchange rate rises, exports become cheaper, i.e. more exports per unit of foreign currency. This raises demand for exports. More exports mean more supply of foreign exchange.

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