If the yen price of rice is 400 yen and the dollar price of rice is $5, then the law of one price states that the yen/dollar exchange rate should be 0.125.

Question

Quizplus · Accepted Answer

The law of one price states that if the yen price of rice is 400 yen and the dollar price of rice is $5, then the exchange rate should be such that the prices are equivalent when converted. To find the exchange rate, you divide the yen price by the dollar price (400 yen / $5), which equals 80 yen per dollar, not 0.125 yen per dollar.

If the Yen Price of Rice Is 400 Yen and the Dollar