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The law of one price states that the same good manufactured in two different countries should sell for the same price, in the same currency units.
Suppose that the price of U.S. soybeans is currently $6.00 per bushel and the price of European soybeans is currently 4.5 euros per bushel. If the law of one price holds, what is the euro/dollar exchange rate, E (euro/dollar)?
I have
$6=4.5eur
1=4.5eur/$6, = 0.75eur/dollar
This makes since to me but someone is suggesting that the rate is always assumed at 1 euro per dollar amount. So they think the answer is $1.33
Which is correct?
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