Final answer:
A nominal appreciation of the domestic currency occurs with a decrease in inflation, as it boosts demand for the currency and constricts the supply in the foreign exchange markets.
Step-by-step explanation:
For a given real exchange rate, a nominal appreciation of the domestic currency will result from a decrease in inflation. When inflation decreases relative to other countries, there is an increase in demand for the domestic currency and a decrease in its supply. This results in the appreciation of the domestic currency in the foreign exchange markets. This concept can be understood in the context of the Argentine peso. A decrease in Argentine inflation would lead to an increase in demand for pesos, driving up its value compared to other currencies.
A nominal appreciation of the domestic currency can result from A) an increase in inflation and C) an increase in interest rates. When inflation increases or interest rates rise, foreign investors are attracted to hold the domestic currency, causing an increase in demand for the currency and a decrease in its supply. This increase in demand and decrease in supply leads to an appreciation of the domestic currency's value.