Interest Rates and International Capital Flows
All of the following statements about the effect of domestic interest rates on international capital flows are true EXCEPT:
A
Higher domestic interest rates typically reduce the attractiveness of a country’s assets to foreign investors, leading to capital outflows.
B
Higher domestic interest rates tend to attract foreign capital inflows as investors seek better returns.
C
Lower domestic interest rates may drive domestic investors to seek investment opportunities abroad, thereby increasing outbound capital flows.
D
Domestic interest rates are a critical factor influencing the direction and magnitude of both inbound and outbound capital flows.
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