Downward movement along the demand curve for foreign exchange indicates appreciation of currency.

Explanation:
When we talk about the demand for foreign exchange, we are referring to the demand for a country's currency with respect to other currencies. The demand for a currency is influenced by various factors such as trade flows, capital flows, interest rates, inflation rates, and market sentiment.

Understanding the demand curve for foreign exchange:
The demand curve for foreign exchange shows the relationship between the quantity of a country's currency demanded and the exchange rate. It is downward sloping, indicating that as the exchange rate increases (i.e., the price of the domestic currency in terms of foreign currency increases), the quantity of the domestic currency demanded decreases.

Factors affecting the demand for foreign exchange:
1. Trade flows: If a country has a higher export volume compared to its imports, it will create a higher demand for its currency as foreign entities need to purchase the domestic currency to pay for the goods and services. This will result in an upward shift in the demand curve for foreign exchange.

2. Capital flows: Investments and capital inflows into a country can also increase the demand for its currency. Foreign investors need to convert their currency into the domestic currency to invest in the country, leading to an increase in demand.

3. Interest rates: Higher interest rates in a country can attract foreign investors, leading to an increase in the demand for its currency. This is because investors can earn higher returns by investing in the country, requiring them to purchase the domestic currency.

4. Inflation rates: If a country has lower inflation rates compared to other countries, its currency's purchasing power increases, attracting foreign investors and increasing the demand for its currency.

5. Market sentiment: Market expectations and investor sentiment can also influence the demand for a currency. If investors anticipate a currency to appreciate in the future, they may increase their demand for it.

Downward movement along the demand curve:
A downward movement along the demand curve for foreign exchange occurs when the exchange rate decreases (i.e., the value of the domestic currency decreases relative to foreign currency). This indicates a decrease in the quantity of the domestic currency demanded at a given exchange rate.

Appreciation of currency:
When the exchange rate decreases, it means that the domestic currency has strengthened or appreciated relative to foreign currencies. Therefore, a downward movement along the demand curve for foreign exchange indicates the appreciation of the currency.

In summary, a downward movement along the demand curve for foreign exchange indicates the appreciation of the currency, as it reflects a decrease in the quantity demanded of the domestic currency at a given exchange rate.