Assume that copper currently sells for $20 per pound

| November 24, 2016

Assume that copper currently sells for $20 per pound in the United States, and for €10 per pound in Germany. The current exchange rate is €1 = $1.50. It costs $1.00 to ship one pound of copper between the countries. a. Is it possible to profit from international arbitrage? Where should copper be purchased? Where should copper be sold? Show and explain. b. How would you expect the price of copper to change in both countries over time? c. If prices are fixed, how would exchange rates have to adjust to bring Purchasing Power Parity?

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