Can I just get assistance for #5? I'm a little iffy on my intuition on it.

Problem 2: Real Exchange Rate and Terms of Trade Consider two countries1 each producing its own good? with the respective price levels: P = Pig\"rag and P" = PglTpg'r, each in the local currency [1: indicated foreign market and foreign currency). 5 is the nominal exchange rate. Further, consider the following price setting by home rms at home and abroad: PH = MCI0P0, P; = (MCI/g)l0Pct and similarly by foreign rms: P; = Marl\"P\