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Unformatted text preview: ket for loanable funds. In the market for foreign-currency exchange, net foreign in-vestment is the source of supply. A person who wants to buy an asset in another country must supply dollars in order to exchange them for the currency of that country. The key determinant of net foreign investment, as we have discussed, is the real interest rate. When the U.S. interest rate is high, owning U.S. assets is more attractive, and U.S. net foreign investment is low. Figure 30-3 shows this negative Net Foreign Investment Net foreign investment is negative. Net foreign investment is positive. Real Interest Rate Figure 30-3 H OW N ET F OREIGN I NVESTMENT D EPENDS ON THE I NTEREST R ATE . Because a higher domestic real interest rate makes domestic assets more attractive, it reduces net foreign investment. Note the position of zero on the horizontal axis: Net foreign investment can be either positive or negative....
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.
- Spring '10