why does supply of foreign exchange rise when its prise rises?
Supply of foreign currency is directly related with its price ( reflected by the the exchange rate) i.e. higher the exchange rate, higher will be the supply of foreign currencies and vice versa. This can be understood with the help of an example. Suppose the exchange rate rises (say from $1= Rs 40 to $1= Rs 50). This rise in foreign exchange implies that domestic country's export to foreign countries have become cheaper (because now foreigners can purchase Rs 50 worth of goods for $1, as compared to the earlier situation where they could purchase only Rs 40 worth of goods for $1). This raises the demand for exports. Thereby, the supply of foreign exchange rises.