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 were to 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?

BuyFind

Principles of Economics, 7th Editi...

7th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781285165875
BuyFind

Principles of Economics, 7th Editi...

7th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781285165875

Solutions

Chapter 31, Problem 8PA
Textbook Problem

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.

  1. a. Explain how you could make a profit from this situation. What would be your profit per bushel of rice? If other people were to exploit the same opportunity, what would happen to the price of rice in Japan and the price of rice in the United States?
  2. 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?

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