Suppose that the interest rate in the United States is 4%, in Japan it is 7%, an

Question

Suppose that the interest rate in the United States is 4%, in Japan it is 7%, and financial assets in the two countries are equal in risk. Refer to the scenario Japan and the United States. The implication is that:

A) interest rates in Japan will increase further compared to those in the United States.

B) interest rates inthe United States will decrease further compared to those in Japan.

C) the capital flow between Japan and the United States eventually will render the interest rates equal.

D) the interest rates in both countries will remain unchanged

Explanation / Answer

C) the capital flow between Japan and the United States eventually will render the interest rates equal.

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