For instance, suppose a U.S. firm has a U.S. dollar bank deposit in Hong Kong. When the firm wants to withdraw
those dollars—say, to pay a debt in Taiwan—not only is the transaction subject to control in Hong Kong (the government may not let foreign exchange leave the country freely), but the United States may control outflows of dollars from the United States, so that the Hong Kong bank may have difficulty paying back the dollars. It should be recognized that even though domestic and external deposit and loan rates differ, primarily because of risk, all interest rates tend to move together. When the domes- tic dollar interest rate is rising, the external rate will also tend to rise.
For instance, suppose a U.S. firm has a U.S. dollar bank deposit in Hong Kong. When the firm wants to withdrawthose dollars—say, to pay a debt in Taiwan—not only is the transaction subject to control in Hong Kong (the government may not let foreign exchange leave the country freely), but the United States may control outflows of dollars from the United States, so that the Hong Kong bank may have difficulty paying back the dollars. It should be recognized that even though domestic and external deposit and loan rates differ, primarily because of risk, all interest rates tend to move together. When the domes- tic dollar interest rate is rising, the external rate will also tend to rise.
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