If real interest rates are different across countries,investors will shift their money into countries with high real interest rates.

Question

Quizplus · Accepted Answer

This is known as the "carry trade" strategy, where investors borrow money at low interest rates in one country and invest it in another country with higher interest rates to earn a profit from the interest rate differential. As a result, capital flows into countries with higher real interest rates, pushing up exchange rates and potentially leading to inflationary pressures.

If Real Interest Rates Are Different Across Countries,investors Will Shift