which of the following measure can be adopted to stabilize the external value of the local currency?

Step 1: Analyze the question The "external value" of a currency is its value in terms of foreign currencies, i.e. the exchange rate. To stabilize it (or stop it from falling), we need to keep demand for the local currency high relative to its supply on the foreign exchange market.

Step 2: The concept

• Demand for a country's currency comes mainly from foreigners buying its exports.
• Supply of the currency (or demand for foreign currency) comes mainly from residents buying imports.
• If imports are high, people sell naira to buy dollars, so the naira weakens (depreciates).
• If imports fall, less naira is supplied and less foreign currency is demanded, so the naira is supported.

Step 3: Check each option

• A. Reduce the volume of export: Fewer exports mean less foreign demand for the naira and less foreign exchange earned, so the currency weakens. Wrong.
• B. Increase the demand for imports: More imports mean more demand for foreign currency, so the naira depreciates. Wrong.
• C. Increase domestic money supply: More money in circulation tends to cause inflation and reduces the currency's value. Wrong.
• D. Reduce the demand for imports: Less demand for foreign currency eases pressure on the exchange rate and helps stabilize the currency. Correct.

Step 4: Answer

Exam tip: Remember "Exports up, imports down = currency strong." Measures that improve the balance of payments (promoting exports, restricting imports, import substitution) support the external value of a currency. Anything that increases imports or money supply weakens it.