Compute the relative price of coffee

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Reference no: EM131597598

Suppose Vietnam and Ivory Coast produce coffee. The currency unit used in Vietnam is dong(VND) and that in Ivory Coast in West African Franc(XOF). In Vietnam, coffee sells for 6,000 dong(VND) per pound of coffee. The exchange rate is 30 VND per 1 XOF, EVND/XOF = 30.

1) If the Law of One Price holds, what is the price of coffee in Ivory Coast measured in XOF?

2) Assume the price of coffee in Ivory Coast is actually 160 XOF per pound of coffee. Compute the relative price of coffee in Ivory Coast versus Vietnam. Where will coffee traders buy and sell coffee in this case?

Reference no: EM131597598

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