If the real interest rate in the U.S. increases relative to the real interest rate in Japan then:
A) more capital will flow from the U.S. to Japan causing the dollar to appreciate.
B) more capital will flow from the U.S. to Japan causing the dollar to depreciate.
C) more capital will flow from Japan to the U.S. causing the dollar to appreciate.
D) more capital will flow from Japan to the U.S. causing the dollar to depreciate.

Question

Quizplus · Accepted Answer

When the real interest rate in the U.S. increases relative to the real interest rate in Japan, it becomes more attractive for investors to invest in the U.S. This leads to more capital flowing from Japan to the U.S., increasing the demand for dollars and causing the dollar to appreciate.

If the Real Interest Rate in the U