For the United States, suppose the annual interest rate on government securities equals 8 percent while the annual inflation rate equals 4 percent. For Japan, suppose the annual interest rate on government securities equals 10 percent while the annual inflation rate equals 7 percent. These variables would cause investment funds to flow from:

a.

The United States to Japan, causing the dollar to depreciate

b.

The United States to Japan, causing the dollar to appreciate

c.

Japan to the United States, causing the yen to depreciate

d.

Japan to the United States, causing the yen to appreciate

The variables interest rate on government securities and the inflation rate will cause the investment funds to flow from Japan to United States (US), it will cause the yen to depreciate. Because inflation rate of US is 4% which is lower than the Japan which is 7%, and a lower inflation rate is good for the people as the cost is not rising faster than their pay checks. And due to high inflation rate and interest rate on government securities of Japan, it cause the yen to loses it value against dollar.