Foreign currency deposits impact developing countries' money demand and exchange rates.
The study looked at how people in developing countries choose between keeping their money in local currency or foreign currency. By analyzing data from ten countries, the researchers found that the interest rates in foreign countries and the expected changes in exchange rates play a big role in this decision. They used a model that considers people's expectations about the future to better understand this behavior. The results suggest that this model is more accurate than traditional models in predicting people's choices between domestic and foreign currency deposits.