bigredhockey55

A nation’s currency is least likely to depreciate on the foreign exchange market because the:

A) country runs a current account deficit.

B) country removes a high tariff on a major imported good.

C) government recently undertook an unanticipated contractionary monetary policy action.

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An unanticipated shift to contractionary monetary policy would lead to currency appreciation. The contractionary policy leads to lower economic growth, a lower inflation rate, and higher real interest rates. Domestic products are less expensive, foreign investment is encouraged, and exports increase.
The other statements would result in currency depreciation by increasing the demand for foreign goods and the currency needed to purchase them. Removing a high tariff on a major imported good would increase the demand for imports and thus for foreign currency. A current account deficit means that a country imports more than it exports. As a result, there is increased demand for foreign currency.

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