Appreciating Currency via Reduced Foreign Currency Supply

Steps:

• In a floating exchange rate, currency value rises with increased demand or decreased supply for it in forex markets.
• Appreciation requires policies that limit domestic currency outflows or foreign inflows.
• Evaluate options: focus on impacts to supply (domestic currency sold for foreign) and demand (foreign currency bought for domestic).
• Select action that curbs foreign currency access, tightening domestic currency supply abroad.

Why B is correct:

• Reducing foreign currency availability limits citizens' imports and outflows, decreasing domestic currency supply in forex markets (supply-demand equilibrium shifts value up, per balance of payments).

Why the others are wrong:

• A: Lowering interest rates reduces capital inflows, decreasing demand for domestic currency and causing depreciation.
• C: Reducing exporter subsidies weakens exports, lowering foreign demand for domestic currency and causing depreciation.
• D: Removing import barriers boosts imports, increasing domestic currency supply in forex markets and causing depreciation.

Final answer: B