Answer (B) is correct . The currency of a country with a falling inflation rate retains more purchasing power than a currency with high inflation. Demand for a currency with increasing purchasing power will tend to rise.
Answer (A) is incorrect because If a government places restrictions on the importation of goods from another country, trade between the two countries slows and the demand for the exporting country’s currency falls.
Answer (C) is incorrect because If the interest rate in a given country falls, investors will move their capital out in order to seek higher returns elsewhere, lowering the demand for the country’s currency.
Answer (D) is incorrect because Government-imposed restrictions on the movement of capital lower the demand for the country’s currency.
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