Can anyone explain this? How are purchases and payments for imported goods are different?? If we are paying for imports – supply of home currency, demand for foreign currency – but it is still in credit side? Need a way to easily understand table.
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When it comes to purchases and payments for imported goods, there are several key differences to consider:
Now, regarding the supply of home currency and the demand for foreign currency:
When you pay for imports, you typically need to exchange your home currency (e.g., USD) for the foreign currency (e.g., EUR) required to fulfill the payment. This means there is a demand for foreign currency in order to complete the transaction. From an accounting perspective, the payment for imports is recorded as a decrease in cash or accounts payable, depending on the payment method used.
If you’re referring to the foreign exchange market, where currencies are bought and sold, the demand for foreign currency by importers is reflected on the credit side of the exchange rate. In this context, the demand for foreign currency is often shown graphically on the vertical axis of a currency exchange rate chart, with an increase indicating a higher demand for foreign currency.