Question

Which factor plays a role in establishing the value of a country’s currency?

a) The attractiveness of the currency design
b) The location of the country
c) Supply and demand
d) Distance between countries

Answer 1

Supply and demand is the primary factor that plays a role in establishing the value of a country's currency. Changes in interest rates and expected rate of return can affect the demand and supply for a currency, leading to appreciation or depreciation of the currency.

Step-by-step explanation:

The value of a country's currency is established by several factors, with the most significant being supply and demand. Changes in the expected rate of return will shift the demand and supply for a currency. When interest rates in a country increase compared to other countries, more investors will demand that country's currency, causing it to appreciate or strengthen. Conversely, when interest rates are lower, the currency will depreciate or weaken.