The theory of portfolio choice suggests that the most important factor affecting the demand for domestic and foreign assets is the ________ on these assets relative to one another.

Question

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The theory of portfolio choice, also known as modern portfolio theory, suggests that investors make decisions based on the expected return and risk of assets. Therefore, the relative expected return on domestic and foreign assets is the most important factor affecting the demand for these assets. Interest rate, liquidity, and other factors may also influence investment decisions but are secondary to expected return and risk.

The Theory of Portfolio Choice Suggests That the Most Important