Bloomberg Market Concepts (BMC) Practice Exam

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Which factor often contributes to an economy's decision to regulate capital flows?

Job creation in emerging sectors.

Control of inflationary pressures.

The decision to regulate capital flows is often influenced by the need to control inflationary pressures. When a country experiences significant capital inflows, it can lead to increased demand for goods and services, potentially driving up prices and resulting in inflation. By imposing regulations on capital flows, governments can manage the amount of foreign investment entering the economy, thereby exerting control over money supply and stabilizing prices.

While job creation, encouragement of foreign investment, and reduction of currency volatility are important economic considerations, they do not directly address the immediate and urgent need to stabilize inflation. Controlling inflation is often a primary responsibility of central banks and can lead to the implementation of measures that regulate capital movements to maintain economic stability.

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Encouragement of foreign investment.

Reduction of currency volatility.

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