Suppose that two countries, Indonesia and Vietnam, produce coffee. The currency unit used in Indonesia is the Rupiah (IDR). The currency unit used in Vietnam is the Dong (VND). In Vietnam, coffee sells for 4,500 dong (VND) per pound. The exchange rate is 1.57 VND per 1 IDR, EVND/IDR = 1.57.   2 If the law of one price holds, what is the price of coffee in Indonesia, measured in Rupiah (assume we are talking about the same type of coffee)? Please round your answer to the nearest whole number.                   Assume the price of coffee in Indonesia is actually 3000 IDR per pound. Compute the relative price of coffee in Indonesia versus Vietnam (round your answer to 2 decimal places). Where will coffee traders buy coffee? Where will they sell coffee in this case? How will these transactions affect the price of coffee in Vietnam? In Indonesia?

Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter11: Foreign Exchange, Trade, And Bubbles
Section: Chapter Questions
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1 Suppose that two countries, Indonesia and Vietnam, produce coffee. The currency unit used in Indonesia is the Rupiah (IDR). The currency unit used in Vietnam is the Dong (VND). In Vietnam, coffee sells for 4,500 dong (VND) per pound. The exchange rate is 1.57 VND per 1 IDR, EVND/IDR = 1.57.

 

2 If the law of one price holds, what is the price of coffee in Indonesia, measured in Rupiah (assume we are talking about the same type of coffee)? Please round your answer to the nearest whole number.

 

 

 

 

 

 

 

 

 

  1. Assume the price of coffee in Indonesia is actually 3000 IDR per pound. Compute the relative price of coffee in Indonesia versus Vietnam (round your answer to 2 decimal places). Where will coffee traders buy coffee? Where will they sell coffee in this case? How will these transactions affect the price of coffee in Vietnam? In Indonesia?

 

 

 

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