The correct option is 2 and 3 only.
Explanation
The exchange rate or price of a currency in the international market is primarily determined by demand and supply conditions influenced by various economic and political factors.
- Statement 1: Incorrect.
The World Bank does not determine the price of a currency in the international market. Exchange rates are generally determined by market forces such as demand and supply in foreign exchange markets. - Statement 2: Correct.
Demand for goods and services produced by a country affects the demand for its currency. When foreign buyers purchase these goods or services, they must acquire the country’s currency, increasing its demand and influencing its value. - Statement 3: Correct.
Political stability and the stability of the government influence investor confidence. Stable governance attracts foreign investment, increasing demand for the country’s currency. - Statement 4: Incorrect.
While the economic potential of a country can indirectly influence long-term investment decisions, it is not a direct determinant of currency price in the foreign exchange market in the way demand for goods or political stability affects it.
Key Takeaway: Currency prices in international markets are mainly determined by demand and supply factors such as trade demand and political stability rather than decisions by institutions like the World Bank.