How Traders Can Profit from Banana Prices in Guatemala and Honduras

What can traders do if the dollar buys fewer bananas in Guatemala than in Honduras?

a. Buy bananas in Honduras and sell them in Guatemala

b. Buy bananas in Guatemala and sell them in Honduras

c. Buy bananas in Honduras and sell them in Guatemala

d. Buy bananas in Guatemala and sell them in Honduras

Answer:

c. Buy bananas in Honduras and sell them in Guatemala

In this scenario, traders can profit by buying bananas in Honduras where they are cheaper due to the lower price in dollars and then sell them in Guatemala where the price is higher. This action tends to raise the price of bananas in Guatemala, benefiting the traders.

By taking advantage of the difference in banana prices between the two countries, traders can exploit the market inefficiency and make a profit from the price discrepancy. This strategy involves buying low in one market and selling high in another, effectively capitalizing on the exchange rate and demand-supply dynamics.

Overall, traders can leverage the currency exchange rate and supply chain logistics to engage in profitable arbitrage activities between countries with different banana prices, ultimately contributing to the adjustment of prices in both markets.