Describe the relation between the supply of one currency to the demand for other currency.
Explanation of Solution
Suppose there are two countries, namely A and B. If Country A wants to make trade with Country B, A wants to demand B’s currency more and the increased demand for B’s currency will lead its value to increase. To buy B’s currency, A needs to sell its currency. Then, the supply of A’s currency will be raised in the economy. Lead Country A to depreciate, due to the
Appreciation: Appreciation refers to the increase in the value of a currency due to its excess demand in the economy.
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