Which factors increase a country’s currency exchange value? Choose two answers.

A country's currency value, or exchange rate, is influenced by several macroeconomic factors. A rise in productivity makes a country's goods more competitive internationally, increasing demand for its exports and, consequently, its currency. Similarly, a rise in domestic interest rates attracts foreign capital from investors seeking higher returns. This inflow of capital increases the demand for the domestic currency, causing it to appreciate. Both factors lead to a stronger currency.

C. A fall in productivity weakens a country's competitiveness, reduces export demand, and depreciates the currency.

D. A rise in inflation erodes the purchasing power of a currency, making it less attractive and causing it to depreciate.

E. Political unrest creates uncertainty and risk, leading to capital flight and a depreciation of the currency.

F. A fall in population is not a direct, primary driver of short-term currency value; its effects are complex and long-term.

1. Krugman, P. R., Obstfeld, M., & Melitz, M. J. (2018). International Economics: Theory and Policy (11th ed.). Pearson. Chapter 14, "Exchange Rates and the Foreign Exchange Market: An Asset Approach," explains how interest rates affect currency demand.

2. Feenstra, R. C., & Taylor, A. M. (2017). International Macroeconomics (4th ed.). Worth Publishers. Chapter 10, Section 10-2, discusses how productivity differentials influence long-run exchange rates (the Balassa-Samuelson effect).

3. MIT OpenCourseWare. (2007). 14.54 International Trade, Lecture Notes 19: Exchange Rate Determination. Section 3. Retrieved from https://ocw.mit.edu/courses/14-54-international-trade-fall-2007/resources/lec19/ (This lecture discusses the asset market approach, linking interest rates and exchange rates).