Suppose Canadian Wheat Sells for $100 Per Bushel and Russian

question 106

Essay

Suppose Canadian wheat sells for $100 per bushel and Russian wheat sells for 1600 rubles per bushel.
a.If you believe that the purchasing-power parity theory holds,and if the current exchange rate is 12 rubles per dollar,would you expect the exchange rate to change? In what direction would it change?
b.If the current exchange rate is 12 rubles per dollar,how much is the real exchange rate,based on the prices of wheat?
c.If the exchange rate is 12,how could you make profit in this situation? How much profit per bushel could you make?

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Definitions:

Conditioned Stimulus

A once-neutral trigger that, upon association with an unconditioned stimulus, in time provokes a conditioned response.

Extinction

In psychology, the gradual weakening and disappearance of a conditioned response when the conditioned stimulus is no longer paired with the unconditioned stimulus.

Discrimination

The unjust or prejudicial treatment of different categories of people, especially on the grounds of race, age, sex, or disability.

Adaptive Value

The extent to which a trait or behavior increases the odds of survival and reproduction for an organism in its environment.