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Disinflation and the Foreign Exchange Market

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How does disinflation affect investment returns and foreign exchange market dynamics, as represented in the provided FX graph?

A

Disinflation can enhance real returns, attracting foreign investment and shifting the demand for domestic currency to the right.

B

Disinflation reduces the competitiveness of domestic markets, shifting the demand curve to the left.

C

Disinflation only impacts consumer prices and is not reflected in the foreign exchange market.

D

Disinflation causes nominal interest rates to drop, which shifts the supply curve for domestic currency to the right.

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