Demand for Foreign Currency

Foreign Currency is the transaction of a currency takes place in the foreign exchange market. The supply of a currency depends on the ups and downs of the market. In the market large financial institutions and banks trade with money.

foreign currency is needed to import goods or invest in that host country.The demand and supply will determine exchange rate everyday. But these principle is applied only to US dollar,Euro and Yen. The others might use managed exchange rate by using basket of currencies or just pegging it to the US dollar. Some are using capital control to sustain the system.

Factors Affecting Demand and Supply of Foreign Exchange
The supply and demand of foreign exchange depends on lots of factors. They are:
  • Economic Factors that include economic policies formulated by central Banks and government agencies, economic reports, conditions and other economic indicators.
  • Political conditions within and around the country also affect the currency market. Regional, central and international politics cast a profound effect on the currency market.
  • The Market Psychology and the perception of the traders and buyers also affect the currency market in various ways.All these factors affect the currency market and in turn the supply and demand of foreign exchange falters.

Economy Watch,"Demand and Supply of Foreign Exchange", Economy Watch, Accessed April 16, 2012,