In the portfolio balance approach, which one of the following, other things equal, will cause an increase in the demand for domestic bonds by home country citizens?
A) a decrease in the home country interest rate
B) a increase in the home country price level
C) an increase in the home country real income level
D) a decrease in the expected rate of appreciation of the foreign currency (or a decrease In the expected rate of depreciation of the home currency)

Question

Quizplus · Accepted Answer

A decrease in the expected rate of appreciation of the foreign currency (or a decrease in the expected rate of depreciation of the home currency) will make domestic bonds more attractive relative to foreign bonds, leading to an increase in demand for domestic bonds by home country citizens.

In the Portfolio Balance Approach, Which One of the Following