Final answer:
A higher inflation rate generally leads to a weakening of the currency in the foreign exchange market. It reduces the purchasing power, making domestic goods and services relatively more expensive for foreign buyers, decreasing demand for the currency.
Step-by-step explanation:
A higher inflation rate in an economy, other things being equal, does affect the exchange rate of its currency. The correct answer to your question is: c) Yes; Higher inflation weakens the currency. Inflation erodes the purchasing power of a country's currency, making its goods and services more expensive relative to other countries. As inflation rises, the currency's value typically decreases in the foreign exchange market. This weakening is because, with higher prices, more of the currency is required to buy the same amount of goods and services, leading to a decrease in demand for that currency from foreign buyers. Consequently, the exchange rate of a country with higher inflation will likely depreciate against currencies with lower inflation.