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. The implication is that:

Question

Quizplus · Accepted Answer

The difference in interest rates creates an incentive for investors to move their capital from the country with lower interest rates (United States) to the country with higher interest rates (Japan). This capital flow will continue until the interest rates in the two countries are equalized. Therefore, the implication is that the capital flow between Japan and the United States eventually will render the interest rates equal.

Scenario: Japan and the United States Suppose That the Interest