People of a domestic country demand foreign exchange because of which…

People of a given country demand foreign exchange because they want to send gifts abroad. When people send gifts abroad, they need to convert their domestic currency into the currency of the recipient's country. This requires them to demand foreign exchange.

Options 2, 3 and 4 are not valid reasons for people of a domestic country to demand foreign exchange. While foreigners may send gifts to our country or purchase goods from our market, this does not create a direct demand for foreign exchange from the perspective of the domestic country. If people want to purchase imported goods in their country, they need domestic currency and not foreign currency. However, they will require foreign currency if they want to import/purchase goods fro other countries.