If Capital Inflows Decrease Due to Higher Interest Rates in Other

question 17

Multiple Choice

If capital inflows decrease due to higher interest rates in other countries and large amounts of import spending,there will be:

• A)upward pressure on a country's exchange rate.
• B)downward pressure on a country's exchange rate.
• C)no pressure on a country's exchange rate.
• D)none of the above.

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Definitions:

Capital Asset Pricing Model

A model that describes the relationship between systematic risk and expected return for assets, particularly stocks, for pricing risky securities.

Portfolio Risk

The degree of uncertainty of returns on a portfolio due to the possibility of changes in the value of its investments.

Well-diversified Portfolio

An investment portfolio constructed to spread risk across various asset classes and investment vehicles to minimize potential losses.

Risk Aversion

The reluctance of a person or entity to take risks.