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Category - Economics

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Net Capital Outflow (NCO) is the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners. NCO is affected by the following factors EXCEPT:
  1. real interest rates paid on foreign assets
  2. real interest rates paid on domestic assets
  3. perceived political and security risks from foreign holdings
  4. GDP of foreign countries where assets are held
Explanation
Answer: D - The GDP of foreign countries where assets are held does not affect NCO.

Key Takeaway: Net Capital Outflow (NCO) is vulnerable to a number of factors including real interest rates paid on foreign and domestic assets. If someone wished to own a home in Germany and interest rates are prohibitively high, they are much less likely to purchase that home. Other factors that affect NCO include perceived political and security risks from holding assets in a foreign country. For example, a politically unstable country threatens foreign investment through violence or annexation.
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