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Homework answers / question archive / Assume that the price of a bushel of corn EUR 3
Assume that the price of a bushel of corn EUR 3.50 in the Euro Zone and USD 4.00 in the US market. Currently the USD/EUR spot exchange rate is: X0USD/EUR = 1.05. Based on ILOP, all else equal…
A. The US is likely to have a trade deficit with the Euro Zone
B. Trade between the US and the Euro Zone should be balanced
C. The US is likely to have a trade surplus with the Euro Zone
D. There is no relation between trade balances and the pricing of FX
the exchange rate should actually be 4/3 = 1.33
so the USD is overvalued so it is better to procure the corn from Europe
A. The US is likely to have a trade deficit with the Euro Zone
