Explain what would happen to the exchange rate

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Question: Assume that Auenalian iron ore sells for $55 a tonne, Chinese iron are cells for 43URMB {yuan}, and the nominal exchange rate is ERNIE (yuan) per dollar.

a) Calculate and explain how you could make a pro?t from this scenario.

b) If other people exploit the same opportunity {as in part (50], what should happen to the price of iron are in China and in Australia?

c) Suppose that iron ore is the only.I commodity in the world. 1What would happen to the real exchange rate between Auau'alia and China?

d) What factors could prevent the real exchange rate from adjusting in the scenario discussed in parts (a) to (c)?

e) Explain what would happen to the exchange rate (discussed in parts (a) to (d) if the Reserve Bank of Australia (central bank) started printing large quantities of Australian Dollars.

Reference no: EM133336542

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