International Economics
The following hypothetical example will ask you to practice calculating prices with exchange rates and looking for profit opportunities.
Labatt's Beer is produced in Canada and sold in many countries. In the province of Ontario, a six-pack of Labatt's beer sold for $6.60 Canadian. Across the border in Michigan, a six-pack of the same beer was on sale for $2.75 US. At the time, the exchange rate was $0.75 US=$1.00 Canadian
Answer the following questions: (Show your work)
How much would it cost in US currency to buy the beer in Ontario?
How much would it cost in Canadian currency to buy the beer in Michigan?
Is there an arbitrage opportunity? Why/Why not?
If there is an arbitrage opportunity where would you buy and where would you sell. How much profit could you expect on a six-pack?
International Economics
The following hypothetical example will ask you to practice calculating prices with exchange rates and looking for profit opportunities.
Labatt's Beer is produced in Canada and sold in many countries. In the province of Ontario, a six-pack of Labatt's beer sold for $6.60 Canadian. Across the border in Michigan, a six-pack of the same beer was on sale for $2.75 US. At the time, the exchange rate was $0.75 US=$1.00 Canadian
Answer the following questions: (Show your work)
How much would it cost in US currency to buy the beer in Ontario?
How much would it cost in Canadian currency to buy the beer in Michigan?
Is there an arbitrage opportunity? Why/Why not?
If there is an arbitrage opportunity where would you buy and where would you sell. How much profit could you expect on a six-pack?
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