Capital flight is the sudden large drop in demand for domestic assets. Explain the following: if we have capital flight a countries exchange rate will depreciate, leading to a trade surplus. If we have an influx of capital, then a countries exchange rate will appreciate, leading to a trade deficit. Use graphs to support your answer.

Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter34: International Finance
Section34.3: Fixed Exchange Rates
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Capital flight is the sudden large drop in demand for domestic assets. Explain the following: if we have capital flight a countries exchange rate will depreciate, leading to a trade surplus. If we have an influx of capital, then a countries exchange rate will appreciate, leading to a trade deficit. Use graphs to support your answer.

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