For given risk levels, a relatively higher return in one country will lead to capital inflow to that country.For given returns, a relatively higher degree of risk in one country will lead to capital outflows from that country.

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Quizplus · Accepted Answer

This is a basic principle of international finance known as the "risk-return tradeoff." Investors seek to maximize their returns while minimizing their risk, so they will generally invest in countries that offer higher returns for a given level of risk and avoid countries with higher risk for a given level of return. This can lead to capital flows between countries as investors seek out the most attractive investment opportunities.

For Given Risk Levels, a Relatively Higher Return in One