Suppose that two countries, Vietnam and Cte dIvoire, produce coffee The currency unit used in Vietnam is the dong (VND) Cte dIvoire is a member of Communaut Financire Africaine (CFA), a currency union of West African countries that use the CFA franc (XOF) In Vietnam, coffee sells for 5,000 dong (VN...

a P C coffee P V coffee E VNDXOF 500030 1667 b The relative price of coffee ...

Suppose that two countries, Vietnam and Cte dIvoire, produce coffee. The currency unit used in Vietnam is

Question:

Suppose that two countries, Vietnam and Côte d’Ivoire, produce coffee. The currency unit used in Vietnam is the dong (VND). Côte d’Ivoire is a member of Communauté Financiére Africaine (CFA), a currency union of West African countries that use the CFA franc (XOF). In Vietnam, coffee sells for 5,000 dong (VND) per pound of coffee. The is 30 VND per 1 CFA franc, EVND/XOF = 30.
a. If the law of one price holds, what is the price of coffee in Côte d’Ivoire, measured in CFA francs?
b. Assume the price of coffee in Côte d’Ivoire is actually 160 CFA francs per pound of coffee. Compute the relative price of coffee in Côte d’Ivoire versus Vietnam. Where will coffee traders buy coffee? Where will they sell coffee in this case? How will these transactions affect the price of coffee in Vietnam? In Côte d’Ivoire?
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...