Foreign aid can affect the demand for money in developing countries. When a country receives a lot of aid compared to its economy size, it can impact how much money people want to hold. If a country with a fixed exchange rate runs a trade deficit, its central bank may need to use its foreign reserves to protect its currency. This can lead to a decrease in the money supply, slowing down economic activity and putting pressure on prices and income. This can then affect imports and exports, helping to balance the country's trade.