A domestic equity investment is preferred to a foreign equity investment if:

Question

Quizplus · Accepted Answer

A domestic equity investment is preferred to a foreign equity investment if the expected percentage change in the exchange rate is less than the sum of the dividend yield and the rates of capital appreciation differentials. This is because a lower expected change in the exchange rate would mean that any returns from the foreign investment, when converted back to the domestic currency, would be less than the returns expected from the domestic investment when considering the sum of dividend yields and capital appreciation.

A Domestic Equity Investment Is Preferred to a Foreign Equity