________ in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to appreciate,everything else held constant.

Question

Quizplus · Accepted Answer

An increase in the expected future domestic exchange rate means that the domestic currency is expected to become more valuable in the future. This makes domestic assets relatively more attractive to foregin investors, leading to an increase in demand for domestic assets, which in turn causes the domestic currency to appreciate.

________ in the Expected Future Domestic Exchange Rate Causes the Demand