When the price of the foreign currency increases, this implies that the domestic currency has increased in terms of the foreign currency. In other words, we can say that the domestic currency has depreciated.
Now, in such a case there are two implications :
(a) since the domestic currency has depreciated (let's say from Rs.50- per $ to Rs.60 per $), the imports become expensive, as now the domestic traders will have to pay more to buy the same units of foreign good Thus' this leads to a decline in the demand of the foreign currency
(b) At the same time with a depreciation in the domestic currency, the exports become cheaper. This will bring in more foreign currency as the exports will increase. Hence, leading to an increase in the foreign exchange supply.
