Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increase in interest rates
B
Decrease in GDP
C
High inflation rates
D
Political instability
Understanding the Answer
Let's break down why this is correct
Answer
One primary factor that can lead to the appreciation of a currency in the foreign exchange market is an increase in interest rates set by a country's central bank. When a central bank raises interest rates, it often attracts foreign investors looking for better returns on their investments. This increased demand for the currency can lead to its appreciation because investors need to buy that currency to invest in the country's assets. For example, if the United States raises its interest rates, investors from other countries might buy more U. S.
Detailed Explanation
When interest rates go up, people want to save money in that currency. Other options are incorrect because Some might think that a smaller economy makes a currency stronger; It's a common belief that rising prices can help a currency.
Key Concepts
Foreign exchange market
Topic
Currency Appreciation Mechanisms
Difficulty
easy level question
Cognitive Level
understand
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