The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is

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The theory of portfolio choice suggests that investors will choose a portfolio that maximizes expected returns for a given level of risk. Therefore, the most important factor affecting demand for domestic and foreign assets is the expected return on these assets relative to one another. Trade and capital flows, liquidity, and riskiness are also important considerations, but they are secondary to the expected return.

The Theory of Portfolio Choice Suggests That the Most Important