Question

Who do you think are the "sellers" of domestic currency? Why do they sell domestic currency? You may choose to list several different possible sellers (list seller categories).

Answer 1

There are different entities that act as sellers of the domestic currency. The first type of sellers is foreign financial institutions who have made the investment, and want to liquidate the investment and move out of the economy. So, they sell the domestic currency. The second type of sellers is domestic institutional investors who want to invest abroad so they demand foreign currency and sell domestic currency. The third type of seller is the central bank who sells the domestic currency to achieve the exchange rate target. It is done by the central bank if the government wants to undervalue its own currency against the other major currencies. The fourth type of seller is the individuals who visit the abroad. So, to buy the forex, they sell their domestic currency. The fifth type of seller is retail investors who want to make foreign investments to earn superior interest rates. Companies also sell the domestic currency who are in international trade.

They sell domestic currencies due to the following reasons:

A. Investment in foreign assets, bonds and other properties at foreign location

B. To facilitate the international trade

C. To achieve the forex exchange rate targets in the economy

D. To liquidate the domestic investments