Discussion US dollar also Canadian dollar
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 also the Dell US web sites, you find which they sell for US $2000 (US dollars) in the United States also C$3,000 (Canadian dollars) in Canada
(i) Where would you buy the laptop computer if the exchange rate between the Canadian dollars also the U.S. dollar is U.S. $0.80 per Canadian dollar?
(ii) Where would you re-sell it if you wanted to make a profit? (Ignore any taxes, tariffs, transportation costs also differences in quality).
(iii) Does purchasing power parity hold?
(iv) If many Canadian also American businesses acted like you also if the exchange rate was flexible, illustrate what would happen to the value of the exchange rate?
(v) Illustrate what would be the new equilibrium exchange rate which would make purchasing power parity hold for laptops, if the U.S. dollar price also the Canadian dollar price stayed constant?