currency in carry trade and international exchange question

[h21]

An increase in price currency demand in a carry trade would most likely:

1. increase the risk premium demanded by international investors to hold assets denominated in the currency.
2. raise the excess return earned on carry trade strategies.
3. exert upward pressure on the real value of the currency

The answer is A, i have a question as why the more demand on a currency the more risky it is? Also intuitively speaking, wouldnt demand on a currency increase its real value or price? so it should be C

 

[S2000magician]

h21 wrote:An increase in price currency demand in a carry trade would most likely:

1. increase the risk premium demanded by international investors to hold assets denominated in the currency.
2. raise the excess return earned on carry trade strategies.
3. exert upward pressure on the real value of the currency

The answer is A, i have a question as why the more demand on a currency the more risky it is? Also intuitively speaking, wouldnt demand on a currency increase its real value or price? so it should be C

The answer doesn’t say that it becomes more risky. It says that investors will demand a higher risk premium for assets denominated in that currency.
If people want USD and you have bonds denominated in USD, they’re worth more than if people don’t want USD. That’s all it’s saying.