If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are transaction costs of US$50, and the exchange rate is 20 rand/US$, then
A) there is an arbitrage opportunity by buying the wine in the U.S., and selling it in South Africa and the price in South Africa will drop.
B) there is an arbitrage opportunity by buying the wine in South Africa., and selling it in the U.S. and the price in the U.S. will drop.
C) here is an arbitrage opportunity by buying the wine in South Africa., and selling it in the U.S. and the price in the U.S. will rise.
D) there is no arbitrage opportunity.
B
You might also like to view...
If the U.S. purchases oil from Nigeria, what is the effect in the foreign exchange market?
a. It will increase demand for U.S. dollars. b. It will decrease demand for U.S. dollars. c. It will increase supply of U.S. dollars. d. It will decrease supply of U.S. dollars.
Suppose a firm has an annual budget of $200,000 in wages and salaries, $75,000 in materials, $30,000 in new equipment, $20,000 in rented property, and $35,000 in interest costs on capital. The owner/manager does not choose to pay himself, but he could receive income of $90,000 by working elsewhere. The firm earns revenues of $360,000 per year. What is the accounting profit for the firm described above?
A. $0. B. -$90,000. C. $200,000. D. $90,000.