When a country suffers from capital flight, the exchange rate
A)depreciates, because demand in the market for foreign-currency exchange shifts left.
B)depreciates, because supply in the market for foreign-currency exchange shifts right.
C)appreciates, because demand in the market for foreign-currency exchange shifts right.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

Capital flight leads to an increase in the supply of the domestic currency in the foreign exchange market as investors convert their holdings to foreign currencies, causing the domestic currency to depreciate.

When a Country Suffers from Capital Flight, the Exchange Rate