Solution
The appreciation of currency of a country depends on the following factors :
- Net Inflow/Outflow of Money: The overall inflow and outflow of the money affect the value of a country’s currency. The more the inflow the better the value, the more the outflow the worst the value.
- Income Levels: When the incomes of the citizens increase, they tend to spend more that increases the demand for imported goods increasing the demand for foreign currencies contributing to an overall weakening of the local currency.
- Overseas Market: A country that has a trade surplus results in currency appreciation and the country that lacks or has lesser trade surplus tends to have a weaker value of its currency.
When a country exports more than it imports, high funds flow into the country and directly impact economic growth, consumer spending and domestic demand and value of domestic currency will increase.
Hence, Option A is correct.
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