Abstract
Exchange rate basically depends on demand for foreign exchange and supply of foreign exchange which depend on countries balance of payment situation which gets affected mainly by country's exports and imports on the side of current account and the flow of foreign institutional investments, borrowings, and direct investments on the capital account. Exportsand imports mainly depend on price level in the county and in other countries which also include the taxes and the tariffs in the domestic as well as in the foreign country with which we trade and/or have financial flows.Excess demand, whether it is in money market, goods market or labor market play important role in determining the price level in the country.
Published Version
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