Wallings Co. makes baseballs in Nicaragua. They have one main competitor, which is Rilson Inc., which operates in the Dominican Republic. Both companies use a labor-intensive process and both companies' primary customers are in the United States. Over the last year, both the exchange rate of Nicaraguan Cordoba (NIO) to the USD and the Dominican Peso (DOP) to the USD have both remained stable. Over the last year, the Dominican Republic has experienced 7.5% inflation, Nicaragua has experienced 0% inflation, and the US has experienced 0% inflation. Assume that operating costs for each company changed commiserate with their respective inflation rates.

a). Please describe, and calculate, any real changes in the value of the NIO relative to the DOP.

b). Given your answer for (a), has Wallings or Rilson gained a competitive advantage relative to each other in making baseballs for the U.S. market?

c). A large hurricane hits Nicaragua. The agriculture sector is hard hit as many fields are damaged as well as processing facilities, many owned by foreign firms. Several large foreign firms in the agriculture sector are now pulling out of Nicaragua, selling NIO (and buying USD). Unemployment increases in Nicaragua. Fortunately, the baseball production facilities for Wallings was unaffected. What impact will this have, if any, on Rilson?