___________ assumes that domestic and foreign bonds are imperfect substitutes.
A) The monetary approach to exchange rate
B) The portfolio-balance approach
C) The currency substitution approach
D) The overshooting theory

Question

Quizplus · Accepted Answer

The portfolio-balance approach assumes that domestic and foreign bonds are not perfect substitutes and that investors hold a portfolio of both types of bonds to balance their risk and return. The other options (A, C, and D) do not make this assumption.

___________ Assumes That Domestic and Foreign Bonds Are Imperfect Substitutes