The theory of asset demand suggests that the most

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25) The theory of asset demand suggests that the most important factor affecting the demand for domestic and foreign deposits is A) the level of trade and capital flows. B) the expected return on these assets relative to one another. C) the liquidity of these assets relative to one another. D) the riskiness of these assets relative to one another. Answer: B 26) When François the Foreigner considers the expected return of dollar deposits in terms of foreign currency, the expected return must be adjusted for 155 27) The expected return on the dollar deposit in terms of foreign currency can be written as the _____ of the interest rate on dollar deposits and the expected appreciation of the dollar. 28) If the interest rate on foreign deposits (i F ) increases, holding everything else constant, 29) If the interest rate on dollar deposits is 10 percent, and the dollar is expected to appreciate by 7 percent over the coming year, the expected return on dollar deposits in terms of the foreign currency is A) 3 percent. B) 10 percent. C) 13.5 percent. D) 17 percent. E) 24 percent. Answer: D 30) If the interest rate is 7 percent on euro deposits and 5 percent on dollar deposits, and if the dollar is expected to appreciate at a 4 percent rate, 31) If the interest rate is 13 percent on euro deposits and 15 percent on dollar deposits, and if the euro is expected to appreciate at a 4 percent rate relative to the dollar, then 156
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