A case for capital inflow controls can be made because capital inflows

Question

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Capital inflows can cause a lending boom as foreign investors seek higher returns in the domestic economy, which can lead to excessive risk-taking by domestic financial institutions. Capital inflow controls can limit the amount of capital that flows into the country and mitigate these risks. The other options are incorrect, as capital inflows can finance both productive and unproductive investments, and regulation of banking activities can also help prevent financial crises.

A Case for Capital Inflow Controls Can Be Made Because