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The expected rate of inflation in Japan is 12% and the expected rate of inflation in Italy i 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%

Basic Finance, Finance

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