Question : Which of the following factors can influence the demand for a country's currency in the foreign exchange market?
Option 1: Interest rates
Option 2: Economic indicators
Option 3: Political stability
Option 4: All of the above
Correct Answer: All of the above
Solution : The correct answer is (d) All of the above.
Various factors can influence the demand for a country's currency in the foreign exchange market. These factors include:
a) Interest rates: Higher interest rates in a country can attract foreign investors seeking higher returns on their investments. This increased demand for the country's currency can lead to its appreciation.
b) Economic indicators: Positive economic indicators such as strong GDP growth, low inflation, and favorable trade balances can attract foreign investors and increase the demand for a country's currency.
c) Political stability: Countries with stable political environments and sound governance are often perceived as safer for investments. This can lead to increased demand for their currency as investors seek stability.
Other factors such as government policies, market sentiment, and geopolitical events can also impact the demand for a country's currency. It's important to note that these factors interact with each other and can have both short-term and long-term effects on currency demand.
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