Question
. Open Economy: Nominal Exchange Rates & Real Exchange Rates. (a) Assume that Airpods in America sell for $100 per pair, whereas they go for
. Open Economy: Nominal Exchange Rates & Real Exchange Rates. (a) Assume that Airpods in America sell for $100 per pair, whereas they go for U16,000 in Japan for one pair, and the nominal exchange rate is $1 = U80. i. What is the Real Exchange Rate for Airpods? ii. Explain how you could make a profit from this situation. iii. What would be your profit per pair of Airpods? iv. If other people exploit the same opportunity, what would happen to the price of Airpods in Japan? What would happen to the price of Airpods in the United States? (b) Assume that the Nominal Exchange Rate now rises to $1 = U50. i. Which currency has appreciated? Which currency has depreciated? ii. What would happen to Exports, Imports, and Net Exports in the United States due to such appreciation or depreciation?
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