With perfect substitutability and perfect capital mobility,the domestic interest rate is equal to the foreign interest rate.

Question

Quizplus · Accepted Answer

In a situation of perfect substitutability and perfect capital mobility, investors can freely move their funds between domestic and foreign markets to take advantage of higher interest rates. As a result, the domestic interest rate tends to equalize with the foreign interest rate. Therefore, the statement is true.

With Perfect Substitutability and Perfect Capital Mobility,the Domestic Interest Rate