If asset owners in Japan and Canada consider Japanese and Canadian assets as good substitutes for each other and if the Canadian interest rate is 5%,while the Japanese interest rate is 2%:

Question

Quizplus · Accepted Answer

If Japanese and Canadian assets are considered good substitutes, investors will move their funds to Canada to take advantage of the higher interest rate, increasing the supply of funds in Canada and reducing the Canadian interest rate.

If Asset Owners in Japan and Canada Consider Japanese and Canadian