You decide to open a jewelry factory in the US. You can either use beads sourced domestically, or you can use beads from India. The current nominal exchange rate is 70.8 Indian rupees per US dollar. If you purchase the beads from the United States, you will pay $3.50 per 100 beads (inclusive of shipping and handling). If you purchase the beads from India, you will pay 175 Indian rupees per 100 beads (inclusive of shipping and handling). Using this information, answer the following questions.
(a) Calculate the real exchange rate and determine whether you should import the beads or source them domestically.
(b) Suppose that the US supplier of beads is able to lower their price to $3 per 100 beads. Now calculate the real exchange rate and determine whether you should import the beads or source them domestically.

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The Answer of You decide to open a jewelry factory in the US. You can either use beads sourced domestically, or you can use beads from India. The current nominal exchange rate is 70.8 Indian rupees per US dollar. If you purchase the beads from the United States, you will pay $3.50 per 100 beads (inclusive of shipping and handling). If you purchase the beads from India, you will pay 175 Indian rupees per 100 beads (inclusive of shipping and handling). Using this information, answer the following questions.
(a) Calculate the real exchange rate and determine whether you should import the beads or source them domestically.
(b) Suppose that the US supplier of beads is able to lower their price to $3 per 100 beads. Now calculate the real exchange rate and determine whether you should import the beads or source them domestically.

You Decide to Open a Jewelry Factory in the US