Capital inflows tend to

Question

Quizplus · Accepted Answer

Capital inflows refer to the inflow of foreign capital into a country. This increases the demand for the currency of the capital-importing nation in the foreign-exchange market, leading to an appreciation in the currency's value. Therefore, choice B is the correct answer. A is incorrect because capital inflows appreciate the currency of the capital-importing nation, not the capital-exporting nation. C is partially correct but not as precise as B because it explains only the effect on the capital-exporting nation's currency. D is incorrect since capital inflows do not necessarily decrease official reserves of the capital-importing country. E is incorrect since capital inflows increase the demand for the currency of the capital-importing country, not the supply.

Capital Inflows Tend to