An individual will be indifferent between holding foreign or domestic bonds when which of the following conditions holds?
A) Interest parity must hold.
B) The J- curve effect must hold.
C) The expected rate of depreciation of the domestic currency must be zero.
D) The Marshall- Lerner condition must hold.
E) The foreign and domestic interest rates must be equal.

Question

Quizplus · Accepted Answer

Interest parity condition implies that the expected returns on foreign and domestic bonds are equal when adjusted for exchange rate changes, making an investor indifferent between holding either.

An Individual Will Be Indifferent Between Holding Foreign or Domestic