If asset owners in Japan and the United States consider Japanese and U.S. assets as good substitutes for each other and if the U.S. interest rate is 5% while the Japanese interest rate is 2%:

Question

Quizplus · Accepted Answer

Given that assets in Japan and the U.S. are considered good substitutes, investors will likely move their capital to the U.S. to benefit from the higher interest rate. This increased demand for U.S. assets (financial inflows) will lead to a decrease in the U.S. interest rate as the supply of loanable funds increases.

If Asset Owners in Japan and the United States Consider