How do capital flows act as a key mechanism of contagion during financial crises?

Group of answer choices

By encouraging investors to engage more heavily in foreign markets, thereby increasing home bias and spreading financial instability more evenly across global economies.

By compelling governments to intervene in the financial markets, potentially resulting in policy errors and further exacerbating the crisis through misaligned economic strategies.

By enabling rapid withdrawal of foreign investments and a "flight to safety," leading to sharp declines in currency and asset values, which can subsequently destabilize other economies connected through trade and investment.

By constraining domestic credit markets, leading to a reduction in lending and investment activities, which further depresses the economic growth of affected countries.