Question

International Mangement course

1. What is the difference between direct quotation and indirect quotation? Give an example.

2. What is a convertible currency? Give an example of a convertible currency.

3. Discuss the factors that influence the demand and supply of a currency.

Answer 1

Ans

1 direct quote shows how many units of foreign currency can be purchased per unit of domestic currency E. G 70 Indian rupees/dollar On the other hand indirect quote shows the value of domestic currency in foreign one E. G USD/rupee =1/70=0.014

2 convertible currency is a currency which can be easily converted into foreign currencies without Govt restrictions

3 It all depends upon supply and demand for various items. Cheif ones are

1 Demand for currency depends upon amount of domestic transactions. Also supply is in proportion to value of that transactions

2 Amount of foreign transactions. E. G higher exports of usa goods lead to more demand for usa dollars as foreigners need dollars to purchase usa goods. Supply of dollars will depend on the other hand on amount of foreign goods exported to usa by foreigners

3 Amount of capital flows involved E. G foreign investment in usa is in terms of dollars which leads to demand for dollars. Usa investment in foreign countries on the other hand result in supply of usa dollars as usa investors convert dollars into foreign countries to invest in these countries

4 Amount of loans taken from other countries and lend to other countries determine demand and supply of currency