Imperfect asset substitutability assumes:
A) the returns on foreign and domestic currency bonds are the same.
B) the returns on foreign and domestic currency are unrelated.
C) the returns on foreign and domestic currency are not influenced by risk.
D) Sterilized intervention proves to be unproductive.
E) the returns on foreign and domestic currency are different, but both are influenced by risk.

Question

Quizplus · Accepted Answer

Imperfect asset substitutability assumes that there is a difference in returns between foreign and domestic currency, but both are influenced by risk. This means that investors may not be able to perfectly substitute one for the other, as they are not identical assets.

Imperfect Asset Substitutability Assumes