Final answer:
An increase in a country's exchange rate allows it to import more due to stronger purchasing power. Appreciation of a currency often leads to a rise in yields due to increased demand from investors seeking higher returns.
Step-by-step explanation:
An increase in the exchange rate for a country's currency would most likely lead to a situation where the country could import more. A stronger currency buys more foreign goods per unit, making imports cheaper. Consequently, the correct outcome of an increased exchange rate in this scenario is that the country can buy more foreign products, which translates to greater purchasing power in the international marketplace.
Now, when we think about the expected impact of exchange rates on yields (e.g., the interest rate paid on government bonds), if a currency is anticipated to appreciate, the demand for that currency tends to increase. Investors attract to higher-yielding investments, which could lead to higher interest rates in order to balance the demand with the supply of the currency.
Therefore, as a country's currency appreciates, the expected exchange rates might result in a rise in yields as investors seek to capitalize on the stronger currency and the higher returns it may bring. This movement in yields can help to attract foreign capital, influencing international financial markets and potentially leading to trade imbalances as seen in historical examples such as the United States in the late 1990s and early 2000s.