If the European Union enforces a quota limiting the import of clothing made in China, thereby reducing the UK's clothing imports, which statement accurately describes the impact on the foreign exchange market for the British pound?

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The demand for pounds falls, causing the pound to weaken.The supply of pounds rises, leading to a depreciation of the pound.The supply of pounds declines, resulting in the pound strengthening.The demand for pounds rises, causing the pound to strengthen.None of the above.

Explanation

When the EU restricts clothing imports from China, UK demand for foreign currency to purchase these goods decreases. As a result, the demand for pounds increases because importers need more pounds to buy UK goods or services. This increased demand for pounds causes the currency to appreciate.