Demand side in market for foreign exchange(2)

Other individuals who have to pay for an imported item in the future may wish to acquire the needed foreign currency today, rather than risk the possibility that the foreign currency will become more valuable in the future and would increase the cost of the item in local currency . Activity undertaken to avoid the risk associated with changes in the exchange rate is referred to as hedging. the total demand for a foreign currency at any one point in time thus reflects these three underlying demands : the demand for foreign goods and services ( and transfers and investment income payments abroad ),the demand for foreign investment ,and the demand based on risk-taking or risk-avoidance activity .it should be clear that the demands on the part of a country is citizens correspond to debit items in the balance-of-payment accounting .