Explanation:

Appreciation of domestic currency means that the value of domestic currency has increased in relation to foreign currency. This means that now more foreign currency can be bought with the same amount of domestic currency than before. Let us understand the effect of this on the supply curve of foreign exchange.

The supply curve of foreign exchange represents the quantity of foreign exchange that sellers are willing and able to sell at different exchange rates. The supply of foreign exchange is determined by the demand for domestic currency by foreign buyers. When the domestic currency appreciates, it means that foreign buyers need to pay less of their own currency to buy the same amount of domestic currency. This reduces the demand for domestic currency and increases the supply of foreign exchange.

This effect can be explained as follows:

- Effect on exporters: When the domestic currency appreciates, the exports become more expensive for foreign buyers. This reduces the demand for exports, leading to a decrease in demand for domestic currency. This, in turn, increases the supply of foreign exchange.
- Effect on foreign investors: When the domestic currency appreciates, the returns on investments made in the domestic currency become relatively lower compared to investments made in foreign currency. This reduces the demand for domestic currency by foreign investors, leading to an increase in the supply of foreign exchange.
- Effect on tourism: When the domestic currency appreciates, foreign tourists need to spend more of their own currency to get the same amount of domestic currency. This reduces the demand for domestic currency, leading to an increase in the supply of foreign exchange.

All these factors lead to an increase in the supply of foreign exchange. Therefore, the correct answer is option C, which states that the supply curve of foreign exchange will remain constant.