Question

Why do higher interest rates lead to higher net capital outflow?

Why do higher real interest rates make a country's assets more
attractive to foreign investors? Please keep answer short and
simple

Answer 1

Higher interest rates lead to higher net capital outflow and make a country's assets more attractive to foreign investors.

Step-by-step explanation:

Higher interest rates lead to higher net capital outflow because they make investing in foreign countries more attractive. When interest rates are higher in a country, investors can earn a higher return on their investments. This leads to more funds flowing out of the country and into foreign economies, resulting in higher net capital outflow.

Higher real interest rates make a country's assets more attractive to foreign investors because they offer a higher return compared to other countries. Foreign investors will demand the country's currency to purchase these assets, which increases its value and makes it more attractive.