If the exchange rate is 8 Moroccan dirhams per U.S.dollars,a crate of oranges costs 400 dirhams in the Moroccan capital of Rabat,and a similar crate of oranges in Miami sells for $55 dollars,then
A)the real exchange rate is greater than one and arbitrageurs could profit by buying oranges in the U.S.and selling them in Morocco.
B)the real exchange rate is greater than one and arbitrageurs could profit by buying oranges in Morocco and selling them in the U.S.
C)the real exchange rate is less than one and arbitrageurs could profit by buying oranges in the U.S.and selling them in Morocco.
D)the real exchange rate is less than one and arbitrageurs could profit by buying oranges in Morocco and selling them in the U.S.

Question

Quizplus · Accepted Answer

To determine the real exchange rate, we need to compare the prices of the same basket of goods between two countries. Here, we are comparing the price of a crate of oranges in Morocco and the US. 
In Morocco: 1 crate of oranges = 400 dirhams 
In the US: 1 crate of oranges = $55 
We need to convert the price of the crate of oranges in Morocco to dollars: 
400 Moroccan dirhams / 8 Moroccan dirhams per USD = $50 
So, the price of a crate of oranges in Morocco is $50, and the price of a crate of oranges in the US is $55. 
Since the price of the same basket of goods (oranges) is higher in the US than in Morocco, we can say that the real exchange rate is greater than one (since it takes more Moroccan dirhams to buy the same basket of goods in the US). 
Arbitrageurs could buy crates of oranges in Morocco for $50, and sell them in the US for $55, making a profit of $5 per crate. Therefore, they could profit by buying oranges in Morocco and selling them in the US.

If the Exchange Rate Is 8 Moroccan Dirhams Per U