Essay
Suppose Canadian wheat sells for $100 per bushel and Russian wheat sells for 2000 rubles per bushel.
a. If you believe that the purchasing-power parity theory holds, and if the current exchange rate is 16 rubles per dollar, would you expect the exchange rate to change? In what direction would it change?
b. If the current exchange rate is 16 rubles per dollar, how much is the real exchange rate, based on the prices of wheat?
c. If the exchange rate is 16, how could you make profit in this situation? How much profit per bushel could you make?
Correct Answer:
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a. The PPP exchange rate is 2000/100 = 2...View Answer
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