________ in the expected future domestic exchange rate causes the demand for domestic assets to shift to the ________ and the domestic currency to appreciate,everything else held constant.

Question

Quizplus · Accepted Answer

An increase in the expected future domestic exchange rate indicates that the domestic currency is expected to appreciate in the future. As a result, demand for domestic assets including bonds, stocks, and real estate will shift to the right as investors seek to purchase more of these assets to take advantage of the expected appreciation of the currency. This increased demand for domestic assets will cause the domestic currency to appreciate further, assuming everything else remains constant.

________ in the Expected Future Domestic Exchange Rate Causes the Demand