Where do above mentioned effects of the short term capital flows come from? These effects vary with some characteristics of the country to which short term capital flows move: exchange rate regime in the country, interest rate differential between the country and foreign countries, size of the balance of payments deficit. Since the size of these effects depends on the monetary policy followed in the country (the degree of sterilization), without technical details, we can conclude that short term capital flows affect the quantity of money, interest rate (therefore foreign exchange rate) and general price level in the country. Therefore, the correct option is C.