Suppose That the Exchange Rate Is 10 Moroccan Dirhams Per

question 218

Multiple Choice

Suppose that the exchange rate is 10 Moroccan dirhams per Canadian dollar. Also suppose that you can buy a crate of oranges for 300 dirhams in the Moroccan capital of Rabat and can buy a similar crate of oranges in Ottawa for $35. Which statement is consistent with these facts?

• A) The real exchange rate is greater than one, and arbitrageurs could profit by buying oranges in Canada 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 Canada.
• C) The real exchange rate is less than one, and arbitrageurs could profit by buying oranges in Canada 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 Canada.

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Definitions:

Budget Surplus

When federal tax receipts are greater than federal government spending.

Budget Deficit

A budget deficit occurs when an entity, typically a government, spends more money than it receives in revenue over a specific period.

Exports

Goods or services sent to another country for sale.

Dumping

The practice of selling a product in a foreign market at a price that is below the cost of production or below the price in the home market, often with the aim of driving out competition.