If a Country Raises Its Budget Deficit, the Net Capital

question 80

Multiple Choice

If a country raises its budget deficit, the net capital outflow

• A)rises, so the supply of its currency shifts right in the market for foreign currency exchange.
• B)rises, so the demand for its currency shifts right in the market for foreign currency exchange.
• C)falls, so the supply of its currency shifts left in the market for foreign currency exchange.
• D)falls, so the demand for its currency shifts right in the market for foreign currency exchange.

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Definitions:

Market Risk Premium

The extra return expected by investors from holding a risky market portfolio instead of risk-free assets.

Security Market Line

A graphical representation used in financial markets to illustrate the relationship between risk and return for individual securities.

Reward-To-Risk Ratio

A measure used in finance to compare the expected returns of an investment to the amount of risk undertaken to capture these returns.

Risk-Free Rate

The theoretical rate of return of an investment with zero risk of financial loss, often represented by the yield of government bonds from stable governments.