BO Suppose you trade dollars and euros for a bank that has branches in Boston and Frankfurt. You can electronically transfer the funds between the two branch locations at no cost, and trading commissions are negligible. The current dollar-per-euro exchange rate in Boston is Es/EUR = 1.5636, FR while in Frankfurt, it is Es/EUR = 1.5936. You can make a profit for the bank if you buy euros in Boston and sell them in Frankfurt Assuming other foreign exchange traders face the same exchange rates you do, they will buy dollars in Frankfurt Boston ▼. As a result, the dollar-per-euro exchange rate in Frankfurt (Es/EUR) will¸ (ES/EURO) will BO and sell them in , and the dollar-per-euro exchange rate in Boston
BO Suppose you trade dollars and euros for a bank that has branches in Boston and Frankfurt. You can electronically transfer the funds between the two branch locations at no cost, and trading commissions are negligible. The current dollar-per-euro exchange rate in Boston is Es/EUR = 1.5636, FR while in Frankfurt, it is Es/EUR = 1.5936. You can make a profit for the bank if you buy euros in Boston and sell them in Frankfurt Assuming other foreign exchange traders face the same exchange rates you do, they will buy dollars in Frankfurt Boston ▼. As a result, the dollar-per-euro exchange rate in Frankfurt (Es/EUR) will¸ (ES/EURO) will BO and sell them in , and the dollar-per-euro exchange rate in Boston
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:BO
Suppose you trade dollars and euros for a bank that has branches in Boston and Frankfurt. You can electronically transfer the funds between the two
branch locations at no cost, and trading commissions are negligible. The current dollar-per-euro exchange rate in Boston is Es/E
while in Frankfurt, it is Es/EUR = 1.5936.
FR
You can make a profit for the bank if you buy euros in Boston
/EUR
= 1.5636,
and sell them in Frankfurt
Assuming other foreign exchange traders face the same exchange rates you do, they will buy dollars in Frankfurt
Boston ▼. As a result, the dollar-per-euro exchange rate in Frankfurt (ES/EUR) will
and sell them in
and the dollar-per-euro exchange rate in Boston
BO
(Es/EUR) will
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