The link between the loanable funds market and the foreign exchange market is
A)the governments of the countries involved.
B)the International Monetary Fund.
C)net capital outflow.
D)purchasing power parity.

Question

Quizplus · Accepted Answer

The link between the loanable funds market and the foreign exchange market is through net capital outflow, which is the difference between the amount of domestic saving and the amount of domestic investment. This net capital outflow affects the supply and demand of currency in the foreign exchange market, and thus affects the exchange rate. Therefore, the loanable funds market and the foreign exchange market are closely related.

The Link Between the Loanable Funds Market and the Foreign