going nuts please help,You are trying to decide whether to buy some laptop computers for your business in eith?
You are trying to decide whether to buy some laptop computers for your business in either Canada or in United States. Looking at identical machines on the Dell Canada and the Dell US web sites, you find that they sell for US 00 (US dollars) in the United States and C,000 (Canadian dollars) in Canada.
i.Where would you buy the laptop computer if the exchange rate between the Canadian dollar and the U.S. dollar is U.S. {content}.80 per Canadian dollar?
ii.Where would you re-sell it if you wanted to make a profit? (Ignore any taxes, tariffs, transportation costs, and differences in quality).
iii.Does purchasing power parity hold?
iv.If many Canadian and American businesses acted like you, and if he exchange rate was flexible, what would happen to the value of the exchange rate?
v.What would be the new equilibrium exchange rate that would make purchasing power parity hold for laptops, if the U.S. dollar price and the Canadian dollar price stayed constant?
i. 0.80 USD/ C$
US= 2000USD
CANADA= C$3000 X 0.80 USD/C$= 2400USD
Buy the laptop computer in US if the exchange rate between the Canadian dollar and the U.S. dollar is U.S. $0.80 per Canadian dollar
ii. Re-sell it at Canada
iii. ppp does not hold due to the price of the laptop is less in US Dollar price than in Dollar price equivalent of Canadian Dollar cost
iv. Law of one price will act here. Due to demand in US of the laptop, price will increase while the supply is high in Canada so the price will have to decrease. Exchange rate will be affected by the Consumer’s Price Index due to the changes of price.
v. 1 USD = 1 C$
In the US it’s $2000 USD
and in Canada its $3000 CAD ($3000 * 0.80 = $2400 USD)
So you would buy from the US (cheaper by $400)
not sure about the others sorry