Question

What are the major types of transactions or activities that result in the demand for foreign currency in the spot foreign exchange market? What are the major types that result in the supply of foreign currency in the spot foreign exchange market?

Answer 1

Demand for currency-

1. For imports of good and serives we need foreign currency to buy from abroad.
2. For tourism we need foreign currency.
3. For unilateral transfers from one country to another.
4. For purchase of foreign assets in abroad.
5. For speculation purpose

Supply for foreign currency-

1. Domestic exports for this we receive foreign currency.
2. By foreign investment in our country.
3. From foreign direct investment in countries projects.
4. Tourist incoming in the country bring foreign currency.
5. Purchase of assests by non residents of country.
6. Remittances recieved from abroad.