When capital mobility is perfect interest rate differentials will tend to be offset by ?
Correct answer: D. expected exchange rate changes
- A. Price difference
- B. balance of payments difference
- C. current account differences
- D. expected exchange rate changes
Explanation
With perfect capital mobility, investors move funds to eliminate interest-rate advantages. The remaining offset is an expected exchange-rate change, which can make a higher-interest currency no more attractive overall.
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