Hw FOREIGN Xchange works

Answer 1

The main sources of foreign exchange are export earnings from goods and
services, remittances from overseas, direct investment flows and private and
official loan inflows. The owners of these receipts are the fundamental suppliers
in the market, that is, they sell foreign exchange to licensed foreign exchange
dealers who are then able to sell to other institutions and individuals who need to
buy foreign exchange.
In addition, the National Bank may sell from its
foreign reserves to augment the supply of foreign exchange in the market.

On the other hand, individuals and companies need to buy foreign
exchange for various reasons. These buyers use the foreign exchange to
pay for imports of merchandise, to make service payments (inclusive of
travel), to repatriate profits, and to repay external debt. The National Bank may also purchase foreign exchange from the market and this will
add to the official Net International Reserves.
The sellers and buyers of foreign exchange are not mutually exclusive. The
sellers of today, may be the buyers of tomorrow, or even of today.