Question

The price of any currency in the international market is determined by

• A. The World Bank
• B. The demand for goods and services provided by the country
• C. The amount of gold that country has in reserve
• D. The economic stability of that country

Answer 1

The Correct Option is D

Step 1: Understand the question
The question asks: “The price of any currency in the international market is determined by…?” In simpler words, it is about what factors influence the value of a country’s currency when traded globally.

Step 2: General explanation
The value of a currency in the foreign exchange (forex) market depends largely on the economic health and stability of the country that issues it. Investors, traders, and governments look at indicators such as growth rate, inflation, interest rates, debt levels, trade balance, and political stability. If the economy is strong and stable, the currency is in demand and its price rises. If the economy is weak or unstable, the currency loses value in comparison with others.

Step 3: Why economic stability matters most
- Countries with low inflation, steady growth, and sound policies inspire confidence among international investors. This increases demand for their currency, raising its value.
- Conversely, if a country faces instability (political turmoil, high inflation, recession), confidence declines, demand for its currency drops, and its value falls.
- Even factors like exports, foreign investments, and reserves are all tied to the broader idea of economic stability.

Step 4: Eliminate other possibilities
Other potential factors like gold reserves or trade alone cannot explain the complete determination of currency price. They contribute, but the root determinant is overall economic stability, since it integrates all these factors into one picture of financial health.

Final Answer: The correct option is (D) The economic stability of that country, because stability ensures investor confidence and determines the demand and price of the currency in global markets.