Q1. Coffee beans are produced in Egypt and sold in many countries. In Egypt, a sack of beans sells for 12.95 Egyptian pounds. In the US, the beans sell for $6.99. Suppose that the exchange rate is $0.90 U.S. = £1.00 Egyptian. • How much would it cost in U.S. currency to buy the coffee in Egypt? How much would it cost in Egyptian currency to buy the beer in the U.S.? Is there an arbitrage opportunity? If there is an arbitrage opportunity, where would you buy and where would you sell? How much profit could you expect on a sack of beans?

Brief Principles of Macroeconomics (MindTap Course List)
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Author:N. Gregory Mankiw
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Q1. Coffee beans are produced in Egypt and sold in many countries. In Egypt, a sack of beans sells for 12.95 Egyptian
pounds. In the US, the beans sell for $6.99. Suppose that the exchange rate is $0.90 U.S. = £1.00 Egyptian. • How
much would it cost in U.S. currency to buy the coffee in Egypt? How much would it cost in Egyptian currency to buy
the beer in the U.S.? Is there an arbitrage opportunity? If there is an arbitrage opportunity, where would you buy
and where would you sell? How much profit could you expect on a sack of beans?
Transcribed Image Text:Q1. Coffee beans are produced in Egypt and sold in many countries. In Egypt, a sack of beans sells for 12.95 Egyptian pounds. In the US, the beans sell for $6.99. Suppose that the exchange rate is $0.90 U.S. = £1.00 Egyptian. • How much would it cost in U.S. currency to buy the coffee in Egypt? How much would it cost in Egyptian currency to buy the beer in the U.S.? Is there an arbitrage opportunity? If there is an arbitrage opportunity, where would you buy and where would you sell? How much profit could you expect on a sack of beans?
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