If foreign investors believe that the Algerian government will default on their debt,what might happen?

Question

Quizplus · Accepted Answer

If foreign investors believe that the Algerian government will default on their debt, they will demand higher interest rates to compensate for the increased risk. This will lead to an increase in Algerian interest rates. Additionally, foreign investors may withdraw their investments from Algeria, leading to a net capital outflow. This combination of higher interest rates and higher net capital outflow will result in option B – an increase in both Algerian interest rates and net capital outflow.

If Foreign Investors Believe That the Algerian Government Will Default