The correct answer is: A. A rise in capital inflows into the economy.
A rise in capital inflows into the economy would lead to a fall (depreciation) in the rate of exchange for its currency into the economy. This is because when there is a rise in capital inflows, there is an increase in the demand for the country’s currency. This increase in demand leads to an increase in the price of the currency, which is a depreciation.
B. An increase in the country’s exports would lead to an appreciation of the currency, not a depreciation. This is because when there is an increase in exports, there is an increase in the supply of the country’s currency. This increase in supply leads to a decrease in the price of the currency, which is an appreciation.
C. An increase in the country’s imports would lead to a depreciation of the currency, not an appreciation. This is because when there is an increase in imports, there is an increase in the demand for foreign currencies. This increase in demand leads to an increase in the price of foreign currencies, which is a depreciation of the domestic currency.
D. A fall in the country’s rate of inflation would lead to an appreciation of the currency, not a depreciation. This is because when there is a fall in inflation, the purchasing power of the currency increases. This increase in purchasing power makes the currency more attractive to investors, which leads to an increase in demand for the currency and an appreciation.