When Mexico suffered from capital flight in 1994,Mexico's real interest rate
A)fell and the peso appreciated.
B)fell and the peso depreciated.
C)rose and the peso appreciated.
D)rose and the peso depreciated.

Question

Quizplus · Accepted Answer

During capital flight, investors move their capital out of a country, leading to a depreciation of the local currency (peso). To counteract this and attract capital back, the country often raises interest rates, resulting in a rise in the real interest rate.

When Mexico Suffered from Capital Flight in 1994,Mexico's Real Interest