Answer:
Foreign exchange: It means foreign currency. It also means the stock of foreign currency of a country. The total reserves of foreign currency is the stock of foreign currencies that a country holds at a given time.
Exchange rate: The rate for exchanging domestic currency (say Rs.) into another currency (say\[US\$\]) is known as exchange rate. The rate of exchange represents the value of home currency.
For Example if \[US\$\text{}1\] is equal to 60.86 Indian rupees then exchange rate between American dollar and Indian rupee is \[\$1=Rs.\text{}60.86\].
There is an inverse relationship between foreign exchange rate and demand for foreign exchange. Higher is the exchange rate, and lower is the demand for foreign exchange and vice - versa. The inverse relation between the two can be explained by an example if price of US dollar in India falls down from Rs. 60.86 to 55 it means now Indian people will pay 55 for \[US\text{ }\$1\] instead of Rs. 60.86. This means American goods have become cheaper for Indians. When exchange rate decreases, the demand of foreign currency decreases and vice-versa.
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