The free international mobility of financial capital pulls real interest rates around the world toward equality. Why then might interest rates in Greece and Spain in 2012 be much higher than in other western economies?
A) Greece and Spain are considered risky borrowers and their interest rates reflect a sizable risk premium.
B) Greece and Spain are considered large borrowers and their interest rates reflect a sizable transaction cost.
C) Greece and Spain are not fully integrated into the global economy.
D) Greece and Spain are considered small borrowers and do not attract many interested lenders because the potential profit is so small.
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