Are international capital flows a problem?

Problem: Capital flows can have an adverse outcome onto:

a. Balance of payments (BoP): Shortly term capital inflows can be like:

• Foreign direct investment

• Short term loans

b. Exchange rates: In the demonstrate figure opposite FDI by British investors into Belize sees an increase into the demand for the Belize dollar resulting within an appreciation of which currency

c. Domestic prices and competitiveness inflows lead to an appreciation of the currency creating imports cheaper and also exports dearer. Unemployment might follow.