Why would a country typically desire a stronger currency?
A To reduce the cost of imports and improve domestic purchasing power
B To boost export competitiveness and increase trade volumes
C To attract foreign investors and stimulate economic growth
The correct answer and explanation is:
Correct Answer: A. To reduce the cost of imports and improve domestic purchasing power
A country would typically desire a stronger currency mainly to make imports cheaper and increase the purchasing power of its citizens and businesses. When a country’s currency appreciates in value compared to other currencies, it can buy more foreign goods and services for the same amount of domestic currency. This reduces the cost of imported products such as fuel, machinery, electronics, and raw materials. As a result, both consumers and producers benefit from lower prices, which can help control inflation and improve the standard of living.
A stronger currency also helps citizens when they travel abroad. For example, tourists from a country with a strong currency will find foreign travel more affordable because their money can buy more in foreign markets. This boosts the ability of households to enjoy global experiences or purchase foreign education and health services.
Businesses that rely on imported inputs also benefit, as they spend less on materials and equipment, reducing production costs and potentially increasing profit margins. Furthermore, the central government can save money on servicing foreign-denominated debt, which becomes cheaper when the local currency is stronger.
However, a stronger currency has its drawbacks. It can make exports more expensive for foreign buyers, reducing demand for domestically produced goods and services abroad. This can hurt domestic industries that rely on international markets.
While attracting foreign investment and boosting exports are also important economic goals, they are often better served by a weaker currency. A strong currency is most directly associated with reducing the cost of imports and enhancing domestic purchasing power, making Option A the most appropriate and commonly desired outcome in this context.