when price of foreign currency falls the demand for it rises. explain why?
See, it's basically due to the fact that when the price of a foreign currency( say US$) falls, the domestic consumers will now have to pay less unit of their domestic currency to acquire each unit of foreign currency.
This will encourage the domestic consumers to now undertake various activities like importing goods and services, buying land and other assets abroad etc. This will increase the demand for the foreign currency.
To understand better, take the comparison between two different exchange rates.
Let's say the initial exchange rate was 65INR-1US$ which means that to procure 1 US dollar,an Indian citizen will have to pay 65 INR.Now when the exchange rate falls and the new exchange rate becomes 60INR-1US$, it will become cheaper for Indian citizens to import things from abroad as now, with the fall in the exchange rate, they are required to pay less money. And so, the demand for the foreign currency will increase.
Hope you understood :-)
This will encourage the domestic consumers to now undertake various activities like importing goods and services, buying land and other assets abroad etc. This will increase the demand for the foreign currency.
To understand better, take the comparison between two different exchange rates.
Let's say the initial exchange rate was 65INR-1US$ which means that to procure 1 US dollar,an Indian citizen will have to pay 65 INR.Now when the exchange rate falls and the new exchange rate becomes 60INR-1US$, it will become cheaper for Indian citizens to import things from abroad as now, with the fall in the exchange rate, they are required to pay less money. And so, the demand for the foreign currency will increase.
Hope you understood :-)