The Expected Rate of Inflation in Japan Is 12% and the Expected

question 35

Multiple Choice

The expected rate of inflation in Japan is 12% and the expected rate of inflation in Italy is 9%.In Italy the risk-free rate of interest is 6%.What does the risk-free rate of interest have to be in Japan for real interest rate parity to hold?

• A) 3.16%
• B) 8.92%
• C) 6.0%
• D) 12.0%

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