Currency Appreciation Reduces Export Competitiveness

Steps:

• A rise in the international value of a currency means appreciation, making the domestic currency stronger relative to foreign currencies.
• This increases the foreign currency price of the country's exports, as foreigners need more of their currency to buy the same amount.
• Higher export prices in foreign terms reduce demand from international buyers.
• Consequently, the volume of exports decreases due to lower foreign demand.

Why B is correct:

• Law of demand: Higher prices in foreign currency lead to lower quantity demanded, reducing export volume.

Why the others are wrong:

• A: Foreign currency price of exports rises, not falls, due to appreciation.
• C: Domestic currency price of imports falls, as fewer domestic units buy foreign goods.
• D: Appreciation typically lowers import costs, reducing inflationary pressure on domestic prices.

Final answer: B