If a nation's interest rate on foreign currency deposits is higher inside than outside the nation, which of the following is the cause?
A) a fall in the domestic money supply
B) a country premium, meaning investors are concerned about defaults or capital controls
C) a currency premium
D) an exchange rate premium

Question

Quizplus · Accepted Answer

A country premium, meaning investors are concerned about defaults or capital controls, can cause the interest rate on foreign currency deposits to be higher inside a nation than outside the nation. This is because investors demand compensation for the higher risk they perceive in keeping their money within that particular country.

If a Nation's Interest Rate on Foreign Currency Deposits Is