Capital flight from a country:
A)decreases its interest rates and increases the value of its currency in the foreign exchange market
B)decreases its interest rates and decreases the value of its currency in the foreign exchange market
C)increases its interest rates and increases the value of its currency in the foreign exchange market
D)increases its interest rates and decreases the value of its currency in the foreign exchange market

Question

Quizplus · Accepted Answer

Capital flight refers to the situation where investors withdraw their capital from a country due to concerns about economic or political stability. This leads to a decrease in demand for the country's currency, which in turn leads to a depreciation of its value in the foreign exchange market. To counteract this, the country would typically need to increase its interest rates in order to attract investors back and stabilize the value of its currency. Therefore, the correct choice is D, which states that capital flight would lead to an increase in interest rates and a decrease in the value of the currency in the foreign exchange market.

Capital Flight from a Country