If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Afr

Question

If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are no transaction costs, and the exchange rate is 10 rand/USS, then there is no arbitrage opportunity. there is an arbitrage opportunity by busing the wine in the U.S., and selling it in South Africa and the price in the U.S. will drop. there b an arbitrage opportunity by buying the wine in the U.S., and selling it in South Africa and the price in South Africa will drop. Unable to determine, since France is in the eurozone and we would need exchange rates in euro terms.

Explanation / Answer

A. There is no arbitrage opportunity

As, the relative price of French wine is same in both countries , so there is no arbitrage oppurtunity.

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