When countries experience substantial net outflows of funds, they commonly use indirect intervention by raising interest rates to discourage excessive outflows of funds and therefore limit any downward pressure on the value of their currency.

Question

Quizplus · Accepted Answer

Raising interest rates makes domestic investments more attractive, which can reduce the outflow of funds by encouraging both domestic and foreign investors to invest within the country, thereby supporting the value of the country's currency.

When Countries Experience Substantial Net Outflows of Funds, They Commonly