Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increased capital inflows generally lead to an appreciation of the currency.
B
Increased capital outflows generally lead to an appreciation of the currency.
C
Capital flows have no impact on currency value.
D
Only foreign investment affects currency value.
Understanding the Answer
Let's break down why this is correct
Answer
Capital flows refer to the movement of money for investment, trade, or business purposes between countries. When a lot of money flows into a country, it usually increases demand for that country's currency because foreign investors need to buy it to make their investments. This increased demand can lead to a rise in the currency's value. For example, if many investors are buying stocks in a country, they will need to exchange their own currency for that country's currency, boosting its value. Conversely, if money flows out of a country, the demand for that currency decreases, which can lower its value.
Detailed Explanation
When more money comes into a country, it usually makes that country's money stronger. Other options are incorrect because Some might think that when money leaves a country, it makes the currency stronger; It's a common mistake to think that money movement doesn't affect currency value.
Key Concepts
capital flows
Topic
Capital Flows and Currency Value
Difficulty
easy level question
Cognitive Level
understand
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