The nominal exchange rate is 90 Pakistani rupees per dollar. The price of a shirt in Pakistan is 1800 rupees. The same shirt sells for $25 in the U.S. A. What is the real exchange rate? Show your work. B. Can arbitragers make a profit? C. If your answer to C is yes, where would they buy and where would they sell?
A. The real exchange rate = $25 x 90/ 1800 = 1.25.
B. Yes. The real exchange rate differs from 1.
C. Buy shirts in Pakistan and sell them in the U.S.
Economics
You might also like to view...
A payment that a person receives from the government for engaging in a particular activity is called a
A) bribe. B) subsidy. C) consumer surplus. D) tariff.
Economics
At a carnival roulette wheel, a player can either win $10, $30, or $80 . If it costs $50 to play, we would expect to see
a. A long line of players waiting to play b. No players for the game c. The carnival losing money per play d. All of the above
Economics