Question

Strong currencies are often associated with

• A. High unit value, e.g. $1 = Yen 122
• B. Low unit value, e.g. yen 1= $.0007
• C. Economics with high growth rates
• D. Current account deficits
• E. Low interest rates

Answer 1

The correct option is C Economics with high growth rates

In short, a strong economy is generally characterised by a strong currency. When the economy is doing well, and at a boom period of the economic cycle it implies higher interest rates to keep inflation low. A strong economy will also increase confidence in holding that currency. More growth can bring higher inflation rates and the expectations for interest rate increases. Foreign investment and demand from companies abroad can also play an important factor in boosting the local currency of a strong economy. Hence option ‘c’ is correct answer.