Q. Why can free foreign capital inflow adversely affect an economy?
Answer: It poses risks to currency stability and local liquidity management.
Notes: Sudden or excessive foreign capital inflows can cause currency volatility, complicate liquidity management, and create macroeconomic instability. These risks have been observed in emerging economies such as Brazil and Argentina during episodes of capital flight or rapid inflows.
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📌 Question Number: 4 in 67: International Trade, Investment and Trade Relations in the above course in App.