A key assumption to ensure that domestic returns and foreign returns are in equilibrium is:
A) there are perfectly flexible prices.
B) the quantity of money is fixed.
C) there are no capital controls preventing the movement of capital.
D) trade is not subject to any restrictions.

Question

Quizplus · Accepted Answer

Capital controls prevent the free movement of capital across borders and can potentially disrupt the equilibrium between domestic and foreign returns. Without capital controls, investors can freely move their capital between countries to take advantage of higher returns, leading to an equilibrium in returns.

A Key Assumption to Ensure That Domestic Returns and Foreign