How does a strong currency affect imports and exports?

A strong currency typically appreciates against other currencies, which has specific effects on trade dynamics. When a currency strengthens, it means that it can buy more of foreign currencies. This makes imported goods relatively cheaper for consumers in the country with the strong currency, thus encouraging more imports.

On the other hand, from the perspective of foreign buyers, goods exported from the country with the strong currency become more expensive. This is because they need to spend more of their own currency to purchase goods priced in the stronger currency. Consequently, the demand for exports decreases as they become more expensive for foreign buyers.

Therefore, a strong currency makes imports cheaper and exports more expensive, which directly aligns with the chosen answer. This understanding of currency appreciation’s impact on trade balances is key in macroeconomics, as it plays a critical role in influencing a nation's economic conditions.