Chapter 18, Problem 2P

To determine

Concept Introduction:

Balance of Payment (BOP): It is an account of what is received by the residents of a country from the rest of world and what these residents have paid out to other countries on the account of a sale of goods, services and other invisible items as well as on the account of capital transfers from the other countries. It is divided into two accounts.

Net Capital Outflow: It means that the amount of investment or the assets owned by a domestic country in other countries is less than the investment or the assets owned by other countries in the domestic country. If the foreign interest rate is more than the domestic interest rate then there is an outflow of capital and vice versa.