International Asset Pricing - Quick Quiz

Theories about currency exposure: 1. Traditional model 2. Government intervention theory -hang on, AQ suited- sorry, 3. Free Markets Theory 4. Money Demand Model Which of these models predict positive domestic currency exposure, and which predict negative domestic currency exposure? Bonus points if you can identify which two models are driven by the reaction of bond prices.

Positive: Money Demand Govt Intervention Negative: The rest Reduction in bond prices: Not sure about this because Free Markets and Govt. Intervention deal with bond prices and the other two deal with equity prices. Free Markets leads to lower bond prices.

Traditional - Negative : Equity Market Model - Positive: Equity Free - Negative and Govt intervention - positive : Bonds