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Interest Rates and International Capital Flows Practice Test
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Q1
Based on the real interest rates shown in the table, assume both countries’ bonds are risk-free and that the only difference relevant to investors is the real interest rate. Which statement best describes the likely direction of financial capital flows and the exchange-rate effect in the short run?
Table 10. Real Interest Rates (Annual)
- Country Z: $-0.25%$
- Country W: 1.25%
Based on the real interest rates shown in the table, assume both countries’ bonds are risk-free and that the only difference relevant to investors is the real interest rate. Which statement best describes the likely direction of financial capital flows and the exchange-rate effect in the short run?
Table 10. Real Interest Rates (Annual)
- Country Z: $-0.25%$
- Country W: 1.25%
