Question

Which of these factors would strengthen demand for a nation’s currency on the international market? Select all that apply.

high domestic inflation
stability of government
victory in war
high gross domestic product
defeat in war
low unemployment rates

Answer 1

Selected: stability of government; victory in war; high gross domestic product; low unemployment rates.

Brief reasoning:
- Stability of government increases investor confidence and foreign capital inflows, raising demand for the currency.
- Victory in war (relative to defeat) typically improves political/economic prospects and confidence, attracting foreign demand for the currency.
- High GDP signals a strong economy and investment opportunities, increasing foreign demand for the currency.
- Low unemployment indicates economic strength and stability, making the country more attractive to foreign investors and traders.

Not selected:
- High domestic inflation reduces the currency’s purchasing power and tends to lower foreign demand.
- Defeat in war undermines confidence and usually reduces demand for the currency.