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Arrange the following in correct sequence with respect to the effect on exchange rate under flexible exchange rate system.

A. There is increase in the demand for foreign trips.

B. Depreciation of domestic currency.

C. Higher demand for foreign exchanges.

D. Shift in the demand curve to the right.

Choose the correct sequence from the options given below:

Solution

✅ Correct Option: 1

An increase in demand for foreign trips (A) raises the demand for foreign exchange (C), which shifts the demand curve for foreign exchange to the right (D). With supply unchanged, the price of foreign currency rises, i.e. the domestic currency depreciates (B). Sequence: A, C, D, B.

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