Domestic Currency tends to depreciate owing to:

The correct answer is: D. All of the above

Domestic currency tends to depreciate owing to:

• Constant inflation rate. When the inflation rate is constant, the purchasing power of the currency decreases over time. This means that the same amount of money will buy less goods and services in the future than it does today. This can lead to a depreciation of the currency, as people are less willing to hold onto it if they know that its value will decrease over time.
• Lowering of inflation rate. When the inflation rate decreases, the purchasing power of the currency increases. This means that the same amount of money will buy more goods and services in the future than it does today. This can lead to an appreciation of the currency, as people are more willing to hold onto it if they know that its value will increase over time.
• High inflation rate. When the inflation rate is high, the purchasing power
  Join Our Telegram Channel
  of the currency decreases rapidly. This means that the same amount of money will buy less goods and services in the future than it does today. This can lead to a depreciation of the currency, as people are less willing to hold onto it if they know that its value will decrease rapidly over time.

In addition to the above, there are other factors that can also lead to a depreciation of the domestic currency, such as:

• A decrease in the demand for the domestic currency. This can happen if there is a decrease in the demand for goods and services produced in the domestic economy, or if there is an increase in the demand for goods and services produced in other
  Subscribe on YouTube
  economies.
• An increase in the supply of the domestic currency. This can happen if the government prints more money, or if there is an increase in the amount of foreign investment in the domestic economy.
• A decrease in the value of the country’s foreign exchange reserves. This can happen if the government sells its foreign exchange reserves to buy domestic currency, or if there is a decrease in the value of the country’s exports.
• A decrease in the country’s credit rating. This can happen if the country’s government is seen as being more likely to default on its debt, or if there is a decrease in the country’s economic growth prospects.