ECON 102 Study Guide - Final Guide: Purchasing Power Parity, Arbitrage, Exchange Rate

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31 May 2016

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ECON 102 Full Course Notes

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Econ102: open economy concepts extra practice questions. Nominal and real exchange rates r eal exchange r at e= e p. A bushel of american rice sells for and a bushel of japanese rice sells for 16,000 yen. The nominal exchange rate is 80 yen per dollar. In the u. s. a digital camera costs . The same camera in london sells for 60 pounds. If the exchange rate is . 50 pounds per dollar, then which of the following is correct: the real exchange rate is greater than 1. A person in london with could exchange them for pounds but then wouldn"t have enough to buy the camera there: t the real exchange rate is greater than 1. A person in london with could exchange them for pounds and have more than enough to buy the camera there: the real exchange rate is less than 1.

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If a bushel of rice costs 500 yen in Japan and 100 pesos in Mexico, and someone could sell a bushel of rice in Japan for yen, take those yen and exchange them for pesos, then buy a bushel of rice in Mexico, then the nominal exchange rate is ____ and the real exchange rate is ____.

sangriamule553

Assume that American rice sells for $100 per bushel, Japanese rice sells for 16,000 yen per bushel, and the nominal exchange rate is 80 yen per dollar.

(a) Explain how you could make a profit from this situation. What would be your profit per bushel of rice? If other people exploit the same opportunity, what would happen to the price of rice in Japan and the price of rice in the United States

(b) Suppose that rice is the only commodity in the world. What would happen to the real exchange rate between the United States and Japan?

lemonwombat832

Assume that American rice sells for $100 per bushel, Japanese rice sells for 16,000 yen per bushel, and the nominal exchange rate is 80 yen per dollar.

Explain how you could make a profit from this situation. What would be your profit per bushel of rice? If other people exploit the same opportunity, what would happen to the price of rice in Japan and the price of rice in the United States?
Suppose that rice is the only commodity in the world. What would happen to the real exchange rate between the United States and Japan?

yellowwallaby445

ECON 102 Study Guide - Final Guide: Purchasing Power Parity, Arbitrage, Exchange Rate

ECON 102 Full Course Notes

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