All other things being equal, higher foreign real interest rates increase net foreign investment (net capital outflow) and lead to a(n) depreciation of the domestic currency. It is because between interest rate and capital flow show a negative relationship.
The primary thing to determine of net capital outflow is the real interest rate. U.S. assets is more attractive when the U.S. interest rate is high. It will impact to the U.S. net capital outflow that makes US net capital outflow is low. The net capital outflow and interest rate show a negative relationship.
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