When real interest rates fall in the United States relative to interest rates in Japan,the yen appreciates and the dollar depreciates.

Question

Quizplus · Accepted Answer

When real interest rates in the United States fall relative to those in Japan, investors tend to move their funds to Japan (where they can earn a higher rate of return), causing the demand for yen to increase and the demand for dollars to decrease. The resulting increase in the value of the yen and decrease in the value of the dollar is known as yen appreciation and dollar depreciation.

When Real Interest Rates Fall in the United States Relative