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This article introduces two classes of bonds into the analysis of devaluation in asset markets. The major conclusions of previous research hold even when before devaluation the economy has a position, whether creditor or debtor, in foreign currency denominated market instruments. In the long run, a devaluation causes all nominal variables to rise by the same amount as the exchange rate, whereas all real variables are unchanged. The model is derived from Mundell's (1968) formalization of the Metzlerian framework for an open economy, but incorporates a portfolio balance view of the asset markets. The analysis is focused on a small economy with static expectations which has goods and financial capital mobility with the rest of the world. The nature of the steady-state equilibrium following a devaluation can be established very quickly. A condition of long-run equilibrium is that the capital account be in balance, so that the quantity of nominal assets is constant over time. Under these circumstances clearing of markets occurs at unchanging prices. This paper has investigated both impact and long-run effects of a devaluation for an economy which starts in full equilibrium. It has shown that the changes in the price variables in the short run are within narrower or wider limits than are derived when portfolio considerations are not included, depending upon whether the economy is a creditor or debtor in foreign currency denominated assets.