If a country experienced a large and sudden movement of funds out of it, the interest rate would:
A)increase
B)decrease
C)be unaffected
D)fluctuate

Question

Quizplus · Accepted Answer

When there is a large and sudden movement of funds out of a country, there will be a decrease in the demand for the country's currency. This will lead to a decrease in the exchange rate of the currency, making imports more expensive and exports cheaper. To counteract this, the central bank will increase the interest rate, making it more attractive for investors to hold the currency and slowing down the outflow of funds.

If a Country Experienced a Large and Sudden Movement of Funds