Question

When fear of default on bonds issued by u.s. corporations decline, then

a. net capital outflow falls and the exchange rate rises.


b. net capital outflow rises and the exchange rate falls.


c. net capital outflow and the exchange rate both fall.


d. net capital outflow and the exchange rate both rise?

Answer 1

The best answer is"B"

net capital outflow rises and the exchange rate falls

Answer 2

a. net capital outflow falls and the exchange rate rises.

Step-by-step explanation:

Public impression on the performance of securities goes a long way in determining how well investors purchase them for investment purposes.

When there is fear by investors of a securitie's performance, they avoid buying it. However if there is less fear on the security investors will buy it more.

When fear of default on bonds issued by u.s. corporations decline, net capital outflow decreases because investors have high confidence in local bonds and reduce buying of foreign investments.

Also the exchange rate rises as the currency grows stronger.