Abstract
(2) The argument developed by Todd M. Sandier is the following2: "An increase in the exchange rate (devaluation) makes a given income stream of foreign currency worth more in terms of domestic currency to residents of the devaluing country. Hence, the portfolio mix changes . . . since the relative profitability in terms of domestic currency of assets changes. For instance, starting from portfolio equilibrium if the exchange rate in A increases, there results a situation of disequilibrium in which Α-residents seek to buy foreign assets that now give a higher domestic currency equivalent after the devaluation, ceteris paribus. Also, B-residents try to sell Α-employed capital assets, because the B-currency equivalent of these income stream earnings has fallen. In the process, Qab decreases as B-residents sell Α-employed capital (hence Qaa increases, i. e.,
Published Version
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