Portfolio balance and composition impact on currency rate

According to portfolio balance concept “strong economic growth in a country tends to correspond to an increasing share of that country’s currency in the global market portfolio. Investors need to be induced to increase their allocations to that country and currency, which weakens the currency.”

Why does local currency depreciate?

See if this helps…

Thank you. It helps. As far as I understood, firstly the lokal currency appreciates because foreign investors invest in the developing countries. When the currency becomes too expensive it depreciates in order to induce the foreign investors to further invest in these countries. However, this is still a strange logic for me because currency appreciates firstly…


i noted this too. this make no sense. it is the strong economic growth attract invertors, not the weakened currency.