If capital inflows decrease due to higher interest rates in other countries and large amounts of import spending,there will be:
A)upward pressure on a country's exchange rate.
B)downward pressure on a country's exchange rate.
C)no pressure on a country's exchange rate.
D)none of the above.

Question

Quizplus · Accepted Answer

Higher interest rates in other countries may attract capital away from the home country, leading to a decrease in capital inflows. This may also be compounded by large amounts of import spending which results in increased demand for foreign currencies. With decreased demand for the home currency, there will be downward pressure on the exchange rate.

If Capital Inflows Decrease Due to Higher Interest Rates in Other