For the United States, suppose the annual interest rate on government securities equals 8 percent, while the annual inflation rate equals 4 percent.For Japan, suppose the annual interest rate on government securities equals 10 percent, while the annual inflation rate equals 7 percent.These variables would cause investment funds to flow from

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The real interest rate in the United States is 4% (8% - 4%), while in Japan it is 3% (10% - 7%). Higher real interest rates in the U.S. would attract investment funds from Japan, causing the yen to depreciate.

For the United States, Suppose the Annual Interest Rate on Government