Question: please help simple 1 question, thank you so much in advance!! Law of one price - Ipod index: The iPod (nano 2 gigabytes) costs 608

Law of one price - Ipod index: The iPod (nano 2 gigabytes) costs 608 Brazilian reals (BRL) in Brazil and $149.00 in the US. The actual market exchange rate between the Brazilian real and the US dollar is 0.4 US$ per BRL (BRLUSD). a) What is the dollar cost (in US$) of the iPod sold in Brazil? I b) Comparing the dollar cost of the iPod sold in Brazil to the dollar cost of the iPod sold in the US, i) determine whether a commodity arbitrage opportunity exists and, if so, identify the arbitrage opportunity ii) calculate the arbitrage profit of the iPod opportunity. c) What is the exchange rate ($/real) implied by the iPod Purchasing Power Party, that is, the exchange rate consistent with the law of one price for iPods? d) PPP, Comparing the actual market exchange rate to the one implied by the iPod I i) determine whether the BRL is over/under valued and by how much in percentage terms. ii) determine the profitable trading strategy, that is, which currency you would go long (buy) and which short (sell)
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
