If the U.S. real exchange rate is greater than 1, then there is the possibility of arbitraging by buying foreign goods to sell in the U.S.

Question

Quizplus · Accepted Answer

When the U.S. real exchange rate is greater than 1, it means that U.S. goods are relatively more expensive compared to foreign goods. This creates an opportunity for arbitrage by purchasing cheaper foreign goods and selling them at a higher price in the U.S. market.

If the US Real Exchange Rate Is Greater Than 1, Then There