Assume identical interest rates on comparable securities in the United States and foreign countries. Suppose investors anticipate that in the future the U.S dollar will depreciate against foreign currencies. investment funds would tend to ?
Correct answer: A. flow from the United States to foreign countries
- A. flow from the United States to foreign countries
- B. flow from foreign countries to the United States
- C. remain totally in foreign countries
- D. remain totally in the United States
Explanation
Expected dollar depreciation lowers the anticipated foreign-currency return on U.S. assets. With current interest rates equal, investors therefore shift funds from the United States to foreign countries.
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