In order to compensate for an expected future decline in the Japanese yen relative to the U.S. dollar, the interest rate in Japan must be ______ the interest rate in the United States.
A) higher than
B) lower than
C) equal to
D) fixed relative to

Question

Quizplus · Accepted Answer

To compensate for a future decline in the Japanese yen relative to the U.S. dollar, investors will demand a higher return on their investment in Japan. This means that the interest rate in Japan must be higher than the interest rate in the United States to attract investors and offset the potential currency loss.

In Order to Compensate for an Expected Future Decline in the Japanese