Answer: prevent the currency from appreciating too strongly.

## Explanation **Capital controls on inflows** are typically implemented to: - Limit the amount of foreign capital entering the country - Reduce pressure on the domestic currency to **appreciate** - Maintain export competitiveness by preventing an overly strong currency **Why governments implement capital inflow controls:** 1. **Prevent currency overvaluation** - Strong appreciation can hurt export industries 2. **Reduce speculative bubbles** - Excessive capital inflows can create asset price bubbles 3. **Maintain monetary policy independence** - Large capital inflows can complicate domestic monetary policy **Incorrect options:** - **Option A**: Capital controls on inflows would typically **increase** foreign exchange reserves as the central bank intervenes to prevent appreciation - **Option B**: Controls on **outflows** would be used to prevent currency depreciation, not controls on inflows **Correct Answer: C** - Prevent the currency from appreciating too strongly.

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