Inverse Relation Between Price of Foreign Currency and Its Demand
The relationship between the price of foreign currency and its demand is characterized by an inverse correlation. As the price of a foreign currency increases, the demand for that currency typically decreases, and vice versa.

Understanding the Demand Curve
- The demand for foreign currency can be represented graphically with a downward-sloping demand curve.
- The X-axis represents the quantity of foreign currency demanded, while the Y-axis shows the price of the foreign currency.

Graphical Representation
- Imagine a graph where:
- As the price (Y-axis) increases, the quantity demanded (X-axis) decreases.
- Conversely, if the price falls, the quantity demanded increases.
 *(Placeholder for an illustrative diagram)*

Reasons for the Inverse Relationship
- **Price Sensitivity**: Consumers and businesses are sensitive to price changes. When the foreign currency becomes more expensive, fewer people can afford to buy it.
- **Substitutes**: If the price rises significantly, individuals may seek alternatives, such as domestic goods or services, leading to a decrease in demand for the foreign currency.

Market Dynamics
- **Exchange Rate Fluctuations**: The demand for foreign currency is influenced by exchange rates. A stronger domestic currency makes foreign currency more expensive, reducing its demand.
- **Economic Indicators**: Factors such as inflation, interest rates, and economic stability affect currency prices and directly influence demand.

Conclusion
Understanding the inverse relationship between the price of foreign currency and its demand is crucial for both consumers and businesses engaged in international trade. The demand curve illustrates how price changes can significantly impact currency purchasing behavior in global markets.