Suppose the U.S.government imposes added taxes on interest paid on American bank deposits.What is the likely effect of this regulation?
A)raise Eurodollar interest rates
B)reduce Eurodollar interest rates
C)have no effect
D)capital flight

Question

Quizplus · Accepted Answer

If the U.S. government imposes added taxes on interest paid on American bank deposits, it is likely that investors will shift their funds to foreign bank deposits, leading to a reduction in the demand for U.S. dollars and a decrease in Eurodollar interest rates. This is because investors will receive a lower net return on their investments due to the higher tax burden on US bank deposits, making foreign bank deposits more attractive.