An increase in UK net capital outflow increases the supply of pounds in the market for foreign currency exchange and decreases the real exchange rate of the pound.

Question

Quizplus · Accepted Answer

When there is an increase in net capital outflow, there is an excess supply of pounds in the market, which leads to depreciation of the pound's value. This means that the real exchange rate of the pound will decrease.

An Increase in UK Net Capital Outflow Increases the Supply