The nominal exchange rate is 32 Russian rubles per dollar. The price of a bushel of wheat is 260 rubles in Russia and $7 in the U.S. A. What is the real exchange rate? Show your work. B. Can arbitragers make a profit? C. If your answer to B is yes, where would arbitragers buy and where would they sell
A. The real exchange rate = $7 x 32/260 = 224/260 = .8615
B. Yes. The real exchange rate differs from 1.
C. Buy wheat in the U.S. and sell it in Russia.
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