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Basic Question 4 of 8
The portfolio balance approach expects that as a country's debt ratios deteriorate, foreign investors will demand a higher rate of return to compensate them for the increased risk. Such a return could come from higher interest rates. It could also come from:
B. an immediate currency depreciation to a level to generate anticipation of gains from subsequent currency appreciation.
C. a gradual currency appreciation driven by a more accommodative monetary policy.
A. an immediate currency appreciation.
B. an immediate currency depreciation to a level to generate anticipation of gains from subsequent currency appreciation.
C. a gradual currency appreciation driven by a more accommodative monetary policy.
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Learning Outcome Statements
explain the potential effects of monetary and fiscal policy on exchange rates;
CFA® 2025 Level II Curriculum, Volume 1, Module 8.