A country's overall level of interest rates should have an impact on the financial account of the BOP. Relatively low real interest rates should normally stimulate an outflow of capital seeking higher interest rates in other country currencies.

Question

Quizplus · Accepted Answer

This statement is true. When a country's interest rates are relatively low, investors may seek to invest in other countries with higher interest rates to earn higher returns. This results in an outflow of capital from the low interest rate country and an inflow of capital into the higher interest rate country, affecting the financial account of the balance of payments.

A Country's Overall Level of Interest Rates Should Have an Impact