When Canadians or foreigners expect the return on dollar assets to be high relative to the return on foreign assets, there is a ________ demand for dollar assets and a correspondingly ________ demand for foreign assets.

Question

Quizplus · Accepted Answer

When the return on dollar assets is expected to be high relative to the return on foreign assets, there will be a higher demand for dollar assets and a correspondingly lower demand for foreign assets. This is because investors will want to hold dollar assets to take advantage of the higher returns, which increases demand for those assets, and they will be less interested in foreign assets with lower expected returns, leading to lower demand for those assets.

When Canadians or Foreigners Expect the Return on Dollar Assets