Question
What is the main trade-off when a country uses capital controls?
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Answer
More policy autonomy and stability, but less efficiency and investor confidence.
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Question
Why do emerging markets use capital inflow restrictions such as taxes on foreign investment inflows?
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Answer
To limit hot-money inflows and reduce upward pressure on the currency.
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Question
How do capital outflow restrictions help during a financial crisis?
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Answer
They limit capital flight and help preserve foreign exchange reserves.
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Question
What does a currency convertibility control do?
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Answer
It restricts exchanging domestic currency for foreign currency.
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