With fixed exchange rates and capital mobility:
A) interest rates in the home country and in foreign countries are equalized.
B) interest rates in the home country are higher.
C) interest rates in foreign countries are higher.
D) monetary policy maintains its autonomy.

Question

Quizplus · Accepted Answer

With fixed exchange rates, interest rate parity holds and interest rates in the home country and foreign countries are equalized. Capital mobility implies that investors can freely move their funds between countries, putting pressure on interest rates to converge. Therefore, the answer is A.

With Fixed Exchange Rates and Capital Mobility