An Italian company exchanges euros for dollars from U. S. residents and then uses the dollars to buy U. S. products to sell in its stores in Rome. U. S. residents who exchanged their dollars for euros use the euros to buy bonds issued by French corporations. At this point:.
A. both U. S. net exports and U. S. net capital outflow have fallen.
B. U. S. net exports have fallen and U. S. net capital outflow have risen.
C. U. S. net exports have risen and U. S. net capital outflow have fallen.
D. both U. S. net exports and U. S. net capital outflows have risen.

The answer is D both U.S. net exports and U.S> net capital outflows have risen.

Explanation:

An economy's saving can be used to finance investment at home or buy assets abroad. Thus, national saving equals domestic investment plus net capital flow.

The nominal exchange rate is the relative price of the currency of two countries, and the real exchange rate is the relative price if the goods and services of two countries. When the nominal exchange rate change so that each dollar buys more foreign currency, the dollar is said to appreciate or strengthen. When the nominal exchange rate changes so that each dollar buys less foreign currency, the dollar is said to depreciate or weaken.

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