The country is considered a safe haven and global economic news is terrific. This would cause its currency to:

Question

BlackTom AI · Accepted Answer

A safe-haven currency loses demand when global risk appetite rises, so over time its value falls.

Relevant knowledge points and concepts:
- Exchange rates are determined by supply and demand for a currency, driven by capital flows, trade flows, interest-rate differentials, and risk premia.
- "Safe-haven" status raises demand for a currency during global stress; conversely, when global conditions are strong, investors shift toward higher-yielding, riskier assets.
- Distinguish short-run (temporary portfolio rebalancing, volatility) from long-run (sustained capital flow and fundamental) effects.

Step-by-step reasoning:
1. Terrific global economic news increases global risk appetite and the attractiveness of risky, higher-return investments abroad.
2. Investors reduce holdings of safe assets and reallocate capital away from the safe-haven country toward riskier markets. That reduces net capital inflows (or causes net outflows) for the safe-haven currency.
3. With fewer foreigners buying the safe-haven currency and more residents investing abroad, demand for the currency falls while supply rises—this pushes the exchange rate down (depreciation).
4. In the short run there may be noise or temporary movements, but if global strength persists, these capital flow changes become sustained. Persistent lower demand and continuous outflows cause a longer-run depreciation as fundamentals (capital account position, relative returns) adjust.

Why the correct choice is correct:
- The long-run effect is depreciation because consistent reallocation away from safe assets reduces demand over time, producing a sustained drop in the currency’s value.

Why the other options are incorrect:
- Appreciate in short run: opposite of expected reaction when global conditions improve; safe-haven demand falls rather than rises.
- Depreciate in short run: possible, but the question targets the persistent outcome given sustained terrific global news—so the long-run effect is the key.
- Appreciate in long run: inconsistent with sustained lower demand for a safe asset in a prolonged risk-on environment.

Conclusion: The correct outcome is depreciate in long run, matching the provided answer.

The country is considered a safe haven and global economic news is terrific. This would cause its currency to:单项选择题

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