Suppose that the exchange rate is 50 Bangladesh taka per dollar, and that a bushel of rice costs 200 taka in Bangladesh and $3 in Canada. Which of the following is consistent with these facts?
A) The real exchange rate is greater than one, and arbitrageurs could profit by buying rice in Canada and selling it in Bangladesh.
B) The real exchange rate is greater than one, and arbitrageurs could profit by buying rice in Bangladesh and selling it in Canada.
C) The real exchange rate is less than one, and arbitrageurs could profit by buying rice in Canada and selling it in Bangladesh.
D) The real exchange rate is less than one, and arbitrageurs could profit by buying rice in Bangladesh and selling it in Canada.
Correct Answer:
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