If asset owners in China and the United States consider Chinese and U.S. assets to be substitutes, and the U.S. interest rate
is 6%, and the Chinese interest rate is 3%, what will NOT occur?
Financial inflows will reduce the U.S. interest rate.
The interest rate gap between the United States and China will diminish.
Financial outflows will increase the Chinese interest rate.
Loanable funds will be exported from the United States to China.
