Suppose Sam Then Noticed That the Actual Euro/dollar Exchange Rate
Suppose Sam then noticed that the actual euro/dollar exchange rate on currency markets is €1.2/$,and that a kilogram of wheat still costs $1 in the U.S.and €1.5 in France.Sam then knows that ________.
A)the expected exchange rate between the euro and the dollar is €1.5/$
B)wheat is priced higher in France
C)wheat is priced lower in France
D)an arbitrage opportunity does not exist in the international wheat market
It the actual euro/dollar exchange rate on currency markets is €1.2/$,and a kilogram of wheat still costs $1 in the U.S.and €1.5 in France,Sam also knows that the price of a kilogram of wheat in France is ________.
Sam's mentor is excited about the wheat prices in France and the U.S.because he sees an opportunity to buy wheat in the U.S.and sell it in France,which is known as a(n)________.
A)exchange rate profit
C)violation of purchasing power parity
D)violation of the law of one price
If the law of one price is applied and upheld,an arbitrage opportunity arises.