posted by Jorge on .
Assume that American rise sells for $100 per bushel, Japanese rice sells for 16,000 yen per bushel, and the nominal exchange rate is 80 yen per dollar.
Explain how you could make a profit from this situation. What would be your profit per bushel of rice? If other people exploit the same opportunity, what would happen to the price of the rice in Japan and the price of rice in the United States?
Suppose that rice is only commodity in the world what would happen to the real exchange rate between the United States and Japan?