An Individual Will Be Indifferent Between Holding Foreign or Domestic

question 53

Multiple Choice

An individual will be indifferent between holding foreign or domestic bonds when which of the following conditions holds?

• A) Interest parity must hold.
• B) The J- curve effect must hold.
• C) The expected rate of depreciation of the domestic currency must be zero.
• D) The Marshall- Lerner condition must hold.
• E) The foreign and domestic interest rates must be equal.

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Definitions:

Substitute Products

Products that serve as alternatives to each other; when the price of one increases, the demand for the alternative typically increases.

Regulations

Rules or directives made and maintained by an authority to control or govern behavior and practices within specific areas.

Diversification

A strategy of investing in a variety of assets to reduce overall risk.

Acquisition

The process of obtaining control of another company or asset through purchase or agreement.