How does monetary policy affect international business?

Monetary policy plays a significant role in international business primarily through its influence on exchange rates and trade balances. When a country's central bank adjusts interest rates, it can directly affect the value of its currency. For instance, if interest rates are raised, it often leads to an appreciation of the currency because higher rates tend to attract foreign investment, increasing demand for that country’s currency. Conversely, lowering interest rates can devalue the currency, making exports cheaper and imports more expensive.

This fluctuation in currency value impacts international trade relationships and investment flows. A stronger currency can make a country's exports more expensive for foreign buyers, potentially decreasing export volumes and, consequently, affecting the trade balance. Conversely, a weaker currency can stimulate exports while making imports more costly, thus improving the trade balance.

The other options do not accurately capture the primary function of monetary policy. Trade restrictions on foreign imports are typically a matter of trade policy rather than monetary policy. Setting minimum wage standards is more related to labor laws and domestic policies rather than the functions of monetary policy. Lastly, controlling labor forces is often an aspect of domestic regulation and does not fall under the purview of monetary policy, which primarily focuses on interest rates, inflation, and money supply.