The demand for foreign bonds responds to changes in interest rates in an opposite
way vis-à-vis the demand for domestic bonds So does the response of the demand
to changes in exchange rates The demand for foreign bonds by domestic private
investors is inversely related to the domestic interest rate, since a higher interest rate in the domestic country makes domestic bonds more attractive, edging away
from holding foreign bonds The demand for foreign bonds are positively related
to the expected change in the exchange rate