What would you expect to be the relationship between real rates of interest in Japan and the United States if inflation is expected to be 3% in Japan and 6% in the United States?

Select one:

a.

Japan's real interest rate should be 3% higher than in the United States

b.

Japan's real interest rate should be 3% lower than in the United States

c.

Japan's real interest rate should be half as high as in the United States

d.

Real interest rates should be equal in both countries

e.

The real interest rates should differ in both countries by the incremental inflation rates

f.

The real interest rate in the United States will be 6% higher than the real interest rate in Japn

g.

The real interest rate in the United States will be 6% higher than the U.S. nominal rate

h.

The real interest rate differential is adjusted by the difference in the forward rate when compared on a nominal basis

i.

None of the above