At this juncture, the currency’s total return will be attractive because either a) those who want to buy what the country has to offer need to sell their own currency and buy the local currency or b) the central bank will increase the supply of its own currency and sell it for the foreign currency, which will make the country’s assets go up when measured in its own currency. So, during this time when a country has a favorable balance of payments, there is a net inflow of money that leads to the currency appreciating and/or the foreign-exchange reserves increasing.
