What factors are responsible for inflow of foreign currency Class 12?

What are the factors responsible for inflow of foreign currency?

(a) The factors that affect foreign currency are:

  • Purchasing power parity: The different price levels of products determine the exchange in foreign currency. …
  • Inflation: This leads to an increase in the price of commodity hence lesser the demand of the product compared to the cheaper product.

What is foreign currency inflow?

When a country experiences a large inflow of foreign currency, the central bank will buy the foreign currency and issue local currency to the public. As a result, the international reserves accumulate and people have more money in hand.

What is inflow and outflow of foreign exchange?

The inflow and outflow of foreign capital in and out of an economy is a major aspect of globalization. At the same time, these inflows and outflows significantly affect the appreciation and depreciation of a country’s currency, as foreign exchange reserves are directly affected.

How is foreign currency determined Class 12?

Ans. Foreign exchange rate is determined by the market forces of demand and supply in foreign exchange market. The point where demand and supply of foreign exchange meet, gives the equilibrium rate of exchange as shown in figure and quantity of foreign exchange.

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What is the difference between appreciation and revaluation?

Revaluation means a rise of domestic currency in relation to foreign currency in a fixed exchange rate whereas appreciation implies an increase in the external value of a currency.

What is meant by currency devaluation?

Devaluation, the deliberate downward adjustment in the official exchange rate, reduces the currency’s value; in contrast, a revaluation is an upward change in the currency’s value. … To devalue, it might announce that from now on 20 of its currency units will be equal to one dollar.

What foreign exchange means?

Foreign exchange, or forex, is the conversion of one country’s currency into another. In a free economy, a country’s currency is valued according to the laws of supply and demand. In other words, a currency’s value can be pegged to another country’s currency, such as the U.S. dollar, or even to a basket of currencies.

Which accounting statement shows the value of invisible as well as visible exports and imports?

Balance of these visible exports and imports is known as balance of trade (or trade balance).

What are inflows and outflows in economics?

Capital flows are transactions involving financial assets between international entities. … Capital outflow generally results from economic uncertainty in a country, whereas large amounts of capital inflow indicate a growing economy.

What are the outflows and inflows in the economy?

We define inflows (outflows) refer to capital movements of liabilities (assets) of a country. This chapter assesses the effects of unexpected positive portfolio inflows and outflows shock on South African financial and real economic activity variables.

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What causes capital inflow?

For the purposes of this article, the causes of capital inflows can be grouped into three major categories: autonomous increases in the domestic money demand function; increases in the domestic produc- tivity of capital; and external factors, such as falling international interest rates.