Explain How To Balance Foreign Exchange?

To bring a balance in the demand for foreign exchange and supply of foreign exchange is also concerned with the plan consistency. To meet the targets of the plan, certain raw material, machinery and technical services are required, which if not available domestically, have to import. Therefore, to import them foreign exchange is required. As a result the planners have to make projections regarding the demand for and supply of foreign exchange.

If the supply of foreign exchange is less than the demand for foreign exchange, the plan targets could not be realized. If the planners find that there is shortage of supply of foreign exchange they suggest the steps to increase the supply or they may plan to reduce the demand for foreign exchange.  The supply of foreign exchange depends upon; Exports, foreign remittances, foreign investment and invisible exports. While the demand for foreign exchange rises because of; imports of visible items, invisible imports, outflow of capital and repayments of loans.

The demand for and supply of foreign exchange projections are made in the zero periods as well as for the five years. Thus, the real and efficient planning requires that there should be a balance in between demand for and supply of foreign exchange.