If Asset Owners in Japan and the United States Consider

question 24

Multiple Choice

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%:

• A) financial inflows will reduce the U.S. interest rate.
• B) financial outflows will reduce the Japanese interest rate.
• C) the interest rate gap between the United States and Japan will grow.
• D) financial inflows will increase the U.S. interest rate.

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Definitions:

Excise Tax

A specific tax imposed on certain goods, products, or activities, usually to discourage consumption or to raise revenue.

Comparative Advantage

An economic theory that describes how a country or entity can produce goods and services at a lower opportunity cost than others.

International Trade

Trading goods, services, and capital across borders or territories between countries.

World Price

The international market price of a good or service, determined by global supply and demand.