Given expectations of future exchange rates, when foreign returns are greater than domestic returns, investors will ____ domestic assets, _____ domestic currency, ____ foreign currency, and _____ foreign assets.
A) sell; sell; buy; buy
B) sell; buy; sell; buy
C) buy; sell; buy; sell
D) buy; buy; sell; sell

Question

Quizplus · Accepted Answer

When foreign returns are greater than domestic returns, investors will sell domestic assets and the domestic currency to buy foreign currency and foreign assets. This is because they seek higher returns, which they anticipate from the foreign investments.

Given Expectations of Future Exchange Rates, When Foreign Returns Are