I'm studying for an economics exam and am stuck on this question:

If consumers in Vietnam increase their demand for products that are manufactured in Mexico, which of the following will occur?

A. The supply of Vietnamese dong will decrease.

B. The Vietnamese dong will appreciate.

C. Mexico's financial capital inflow will increase.

D. The Mexican peso will depreciate.

E. Vietnam's financial capital inflow will increase.

The answer is E. Can somebody explain? From my understanding, since Vietnamese dong are going to Mexico to buy those manufactured products, there would be net capital outflow from Vietnam, not inflow. Thank you!


1 Answer 1


I don't like the question because money movement is a current flow and it is also capital flow.

Anyway, the current outflow (to pay for the goods from Mexico) will be matched by a capital inflow. Mexico will use the increase in earnings to buy goods and services and investments in Vietnam. If we assume proportions are constant before and after the increase in earnings, then some amount of the increase will go into investments in Vietnam. Investments are capital.


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.