Question 28 (3.33 points)

Assume that the United States invests heavily in government and corporate

securities of New Zealand. In addition, residents of New Zealand invest heavily in the

United States. Approximately $10 trillion on worth of investment transactions occur

between these two countries each year. The total dollar value of trade transactions

per year is about $1 trillion. Then _. directly influences their exchange rate the

most

income differentials only

inflation differentials only

inflation and interest rate differentials

inflation and income dierentials

interest rate differentials