How is exchange rate determined in the Foreign Exchange Market? Explain.

Nominal exchange rate: It is price of foreign currency in terms of domestic currency. When cost of purchasing one unit of foreign currency (say, dollar) is quoted in terms of domestic...

(b) Gilt-edged is the market in government securities guaranteed by the government – centre or state. The term means least-risk/best quality by way of least risk of default in repayment...

The price of one currency in terms of the other is called Foreign Exchange Rate.

Foreign Direct Investment raises the supply of foreign exchange leading to downward influence on the price of foreign exchange.

It can increase the supply of foreign exchange by selling foreign exchange from its reserves.

(d) Accommodating transactions.

When foreign exchange rate rises, imports become costly for the domestic consumers. This reduces demand for imports causing fall in demands for foreign exchange (When foreign exchange rate falls, opposite...

When foreign exchange rate rises, domestic goods becomes cheaper for foreign buyers. This raises demand for exports causing rise in supply of foreign exchange (when foreign exchange rate falls, domestic...

Rise in foreign exchange rate means that one unit of foreign currency is worth more rupees than earlier. So one unit of foreign currency can now buy more goods and...

Features of money market: (i) It is a market for short-term funds which deals in monetary assets whose period of maturity is up to one year. (ii) Money market instruments are highly...