(Foreign Exchange Market Question) Is the doobie undervalued or overvalued with respect to the dollar?
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Order Paper NowThere are two countries: USA and Doobyland. USA’s form of currency is dollars, while Doobyland’s form of currency is doobies. Let’s say USA and Doobyland factories produce the same shirt.
In the USA, the shirt cost 5 dollars, and in Doobyland it’s 800 doobies.
The exchange rate is 1 dollar = 200 doobies ($1 = 200d)
That means in the US, the shirt cost 1,000d, and Doobyland shirts cost $4.
Since that means the US shirts are more expensive, the supply curve will shift to the right and the Doobyland’s supply curve will shift to the left.
Is the doobie undervalued or overvalued with respect to the dollar? What should the value of the dooby be? Explain and show the math.
