The Country of Rhozundia Is Blessed with Rich Copper Deposits

question 14

Multiple Choice

The Country of Rhozundia is blessed with rich copper deposits.The cost of copper produced (relative to the cost of widgets produced) is therefore very low.From this information we know that

• A)Rhozundia should invest in more widget production.
• B)Rhozundia may or may not have a comparative advantage in copper.
• C)Rhozundia has a comparative advantage in copper.
• D)Rhozundia should export both widgets and copper.
• E)Rhozundia should import copper and export widgets.

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Definitions:

Unbiased Forward Rates

Interest rates or currency exchange rates that are equal to the expected future spot rates, implying no arbitrage opportunities.

Exchange Rate

The exchange rate reflecting the value of one currency compared to another.

Spot Exchange Rate

This is the current exchange rate at which two currencies can be exchanged immediately.

Eurocurrency

Currency deposited by national governments or corporations in banks outside their home market, primarily used for lending, borrowing, and investing internationally.