Oranges are the only good producedin the us and spain. 1 ton of orangescost $310 in the us, and200euros in spain. the nominal exchange rate is $1.55 per euro.
a. calculate the real exchange rate(e)from the us's perspective. intuitively, what does thisnumber represent?
b. now supposethat one ton of oranges costs 150 euros in spain, and everything is the same asabove. explain if, and how you can make a profit in this situation. what would you expect tohappen to the price of oranges in the us and spain if other people also followed your strategy? assuming that transportation costs are zero, and that all goods are tradable, what does thisimply about the real exchange rate, e?
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Oranges are the only good producedin the us and spain. 1 ton of orangescost $310 in the us, and200eu...
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