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Foreign Exchange Systems

Foreign Exchange Systems

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Published by nishadhar

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Published by: nishadhar on Feb 08, 2010
Copyright:Attribution Non-commercial


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Rate of Exchange
 The rate at which one unit of a country’scurrency is exchanged for a number of units of the currency of another is the "exchange rate"between them. Presently one pound sterlingexchanges for Rs. 78 and U.S. dollar for Rs.48.50 This is our rate of exchange with theU.K. and the U.S.A respectively.
Every country has a currency different fromothers. There is no common medium of exchange. It is this feature that, among others,distinguishes international from domestictrade.
Rate of Exchange ( cont)
When the imports and exports of a country areequal, the demand for foreign currency andits supply, or, conversely, the supply of homecurrency and the demand for it will be equal. The exchange rate will be at par.If the supply of foreign currency is greater thanthe demand, it falls below par and the homecurrency will appreciate.If on the other hand, the home currency is ingreater supply, there will be higher demandfor the foreign currency.

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