Real Interest Rates and Foreign Exchange
A decrease in a country’s real interest rates will most likely have which of the following effects on its international capital flows and the value of its currency?
A
It increases domestic investment while maintaining a stable exchange rate
B
It results in capital inflows and appreciation of the domestic currency
C
It leads to capital outflows and depreciation of the domestic currency
D
It causes no change in capital flows but leads to currency appreciation
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