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What are the sources of demand for foreign exchange?

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The demand (or outflow) of foreign exchange comes from the people who need it to make payments in foreign currencies. 

It is demanded by the domestic residents for the following reasons: 

1. Imports of Goods and Services:When India import goods and services, foreign exchange is demanded to make the payment for imports of goods and services. 

2. Tourism: Foreign exchange is demanded to meet expenditure incurred in foreign tours. 

3. Unilateral Transfers sent abroad: Foreign exchange is required for making unilateral transfers like sending gifts to other countries. 

4. Purchase of assets in foreign countries: It is demanded to make payment for purchase of assets, like land, shares, bonds, etc. in foreign countries.

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