International Trade and Concept of Foreign Exchange

International Trade and Concept of Foreign Exchange

Need to know what is international trade and concept of foreign exchange.

The trade always based on the law of supply and demand and the law ultimately directs towards exchange rate the same method law use in international trades and which become base of the exchange rates. Where international trade transaction is occurred, exchange rates must be prevailing there. Exchange rate of currency means value of one currency in the means to other currency. Because of low of demand and supply (decrease or increased in demand & supply) exchange a country always maintained its exchange rate against the other country.

Exchange Rate

Exchange rate is a key factor for international trade and mostly exchange rate is fixed by law of demand and supply for example, purchase of a American product by a Pakistani  consumer will be depend of conversion Pakistani Rupees (Rs) on American Dollar (USD). As exchange rate increased in term of USD the American product price increase at its become more expense for Pakistani consumer and same is when USD exchange rated goes down the American product become cheaper for Pakistani consumer (if other factors remains equal).

Read more: Pak Rupee should be at weaken to Rs125 to the dollar: Moody’s

Affecting Factors for Demand and Supply for a Currency

If currency demand increases/decreases when supply remains same its exchanges rates increased /decreased to achieve market equilibrium. If currency supplies increase/decreases while demand remains same exchange rate will be decreases / increase.


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