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Suppose that the interest rate in Canada is 4%,in Japan it is 7%,and financial assets in the two countries are equal in risk.
-(Scenario: Japan and Canada)Refer to Scenario: Japan and Canada.The implication is that:

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Quizplus · Accepted Answer

When interest rates are unequal between two countries with equal risk, investors will transfer their money to the country with the higher interest rate, creating a capital flow. This will continue until the interest rates become equal in both countries. Therefore, option C is the correct implication.

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