Which scenario describes lower currency supply affecting its price?

When there is a lower supply of currency in the market, it generally leads to an increase in its value or price. This is grounded in the principle of supply and demand: when the supply of a currency decreases but the demand remains the same or increases, the scarcity of that currency makes it more valuable.

In this scenario, if fewer units of a currency are available for trading, buyers are willing to pay more to obtain it, which drives up its price. For example, if a country features a reduced money supply due to factors such as tighter monetary policy or decreased production of currency, this can lead to a strengthened currency value against others.

This concept is foundational in international business, where currency fluctuations can significantly impact trade and investment decisions. Understanding how supply influences price is key to grasping market dynamics and making informed financial choices.