Equation (10.6) states that a higher domestic interest rate leads to higher demand
for domestic bonds; an expected increase in the exchange rate or expected depre-
ciation of the domestic currency shifts the demand for assets from domestic bonds
to foreign bonds, since foreign bonds become more attractive pending the depre-
ciation of the domestic currency; and rather explicitly, a higher level of wealth
boosts demand for bonds. Finally, the function for the demand for foreign bonds
by private investors and its relationship with the three variables are set as follows: