A ton of scrap iron sells for $150 in the U.S. and 1400 yuan in China. The nominal exchange rate is 6.7 yuan per dollar.
A)A profit could be made by buying scrap iron in China and selling it in the U.S. This would tend to drive down the price of U.S. scrap iron.
B)A profit could be made by buying scrap iron in China and selling it in the U.S. This would tend to drive down the price of Chinese scrap iron.
C)A profit could be made by buying scrap iron in the U.S. and selling it in China. This would tend to drive down the price of U.S. scrap iron.
D)A profit could be made by buying scrap iron in the U.S. and selling it in China. This would tend to drive down the price of Chinese scrap iron.

Question

Quizplus · Accepted Answer

The cost of scrap iron in China is 1400 yuan, which is equivalent to approximately $209. This is higher than the $150 price in the U.S., so buying in the U.S. and selling in China could yield a profit, potentially driving down the price in China.

A Ton of Scrap Iron Sells for $150 in the U.S