If real interest rates in Japan fall relative to real interest rates in the United States,the yen will likely __________ in terms of the dollar and the dollar will likely __________ in terms of the yen.

Question

Quizplus · Accepted Answer

If real interest rates in Japan fall relative to real interest rates in the United States, investors will be more likely to invest in the US to earn higher returns, which will increase demand for US dollars and cause the dollar to appreciate relative to the yen. At the same time, the decrease in demand for yen will cause it to depreciate relative to the dollar. Therefore, the correct answer is choice B, where the yen depreciates and the dollar appreciates.

If Real Interest Rates in Japan Fall Relative to Real