If fear of default on bonds issued by U.S. corporations rise, then
A)net capital outflow and the exchange rate both rise.
B)net capital outflow rises and the exchange rate falls.
C)net capital outflow falls and the exchange rate rises.
D)net capital outflow and the exchange rate both fall.

Question

Quizplus · Accepted Answer

If fear of default on bonds issued by U.S. corporations rise, investors may become more hesitant to invest in those corporations, leading to a decrease in net capital inflow and an increase in net capital outflow. This would result in a decrease in demand for the U.S. currency, leading to a fall in the exchange rate. Therefore, option B is the most appropriate choice.

If Fear of Default on Bonds Issued by U