Assume that the price of the same pair of shoes is 80 Canadian dollars (CAD) in Canada, 60 euros (EUR) in Germany, and 75 US dollars (USD). Assume that the nominal exchange rates are as follows: 0.85 USD/CAD, and 0.6 EUR/CAD. a) Calculate the real exchange rate between Germany and Canada, and that between the US and Canada. Show your work. b) How can you make the highest profit in this case. Show your work. (note that you might have more than one way to make profit in this scenario, so make sure to choose the one that yields highest profit) c) Assume that the prices of the shoes are still the same, however assume now that purchasing power parity holds. Compute the EUR/CAD and USD/CAD nominal exchange rates. Show your work. d) Given the assumptions in part c) above, is it possible to make profit in this case? Explain.

Assume that the price of the same pair of shoes is 80 Canadian dollars (CAD) in Canada, 60 euros (EUR) in Germany, and 75 US dollars (USD). Assume that the nominal exchange rates are as follows: 0.85 USD/CAD, and 0.6 EUR/CAD. a) Calculate the real exchange rate between Germany and Canada, and that between the US and Canada. Show your work. b) How can you make the highest profit in this case. Show your work. (note that you might have more than one way to make profit in this scenario, so make sure to choose the one that yields highest profit) c) Assume that the prices of the shoes are still the same, however assume now that purchasing power parity holds. Compute the EUR/CAD and USD/CAD nominal exchange rates. Show your work. d) Given the assumptions in part c) above, is it possible to make profit in this case? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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