What impact does a trade surplus have on a country's economy?

A trade surplus occurs when a country's exports exceed its imports, leading to an inflow of foreign currency. This situation can strengthen the national currency for several reasons. First, increased demand for a country's goods means foreign buyers need to acquire its currency to make purchases, which can drive up the currency's value. A stronger currency can also indicate a healthy economy, as it reflects the competitiveness of a country’s goods and services in the global market.

Additionally, a trade surplus can enhance investor confidence, encouraging foreign investment. As foreign capital flows into the country, it further supports currency strength, creating a positive feedback loop. Therefore, the correct answer emphasizes the potential for a trade surplus to bolster a nation’s currency, reflecting the strength and attractiveness of its economy on the global stage.