Scenario: Japan and the United States 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. As a result:

Question

Quizplus · Accepted Answer

The higher interest rate in Japan will attract capital inflow from the United States to Japan, as investors seek to earn higher returns on their investments. This is consistent with the notion of interest rate parity, which suggests that capital will flow from a country with a lower interest rate to a country with a higher interest rate, all else being equal.

Scenario: Japan and the United States Suppose That the Interest