Assume that interest rates on comparable securities are identical in the United States and foreign countries.Now suppose that investors anticipate that in the future the U.S.dollar will appreciate against foreign currencies.Investment funds would thus be expected to:
A) Flow from the United States to foreign countries
B) Flow from foreign countries to the United States
C) Remain totally in foreign countries
D) Not be affected by the expected dollar appreciation

Question

Quizplus · Accepted Answer

When investors anticipate that the U.S. dollar will appreciate against foreign currencies, investment funds are expected to flow from foreign countries to the United States. This is because investors want to take advantage of the expected currency appreciation, so they invest in U.S. dollar-denominated assets. This increase in demand for U.S. dollar-denominated assets will lead to an increase in the value of the U.S. dollar, thus fulfilling the investors' expectations. Therefore, the correct answer is B.

Assume That Interest Rates on Comparable Securities Are Identical in the United