At each value of the domestic interest rate, decreases in the riskiness of domestic assets capital inflows, capital outflows, and net capital inflows. a. increase; increase; increase b. increase; increase; decrease c. increase; decrease; increase d. decrease; increase; decrease

The answer is C.  increase; decrease; increase

Explanation:

As the domestic interest rate remains unchanged, decreases in the riskiness of the domestic assets will help to increase the risk-adjusted return on domestic assets and as a result:

+ Stimulate foreign investors to start holding/ holding more domestic asset which means they will inject more capital into the country => Capital inflows increase

+ Discourage foreign investors from decreasing holding on domestic asset because they enjoy higher risk-adjusted return which means there will be less sales of domestic assets subsequently less capital outflows => Capital outflows decrease.

As net capital inflows = Capital inflows - Capital outflows, increase in capital inflows and decrease in capital outflows will Increase net Capital inflows

Thus, C is the correct choice.

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