ch10 (3) - Scenario 1: Indifferent between three markets...

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Scenario 1: Indifferent between three markets Hong Kong: HK$30,000/15 HK$ per £ = £2,000 New York: $4,000/ $2 per £ = £2,000 Scenario 2: Buy tuxedo in Hong Kong Hong Kong: HK$30,000/16 HK$ per £ = £1,875 New York: $4,000/ $1.9 per £ = £2,105 Scenario 3: Buy tuxedo in New York Hong Kong: HK$30,000/14 HK$ per £ = £2,143 New York: $4,000/ $2.1 per £ = £1,905 Scenario 4: Buy tuxedo in London Hong Kong: HK$30,000/14 HK$ per £ = £2,143 New York: $4,000/ $1.9 per £ = £2,105 Lessons When comparing goods and services across countries, we can use the exchange rate to compare prices in same currency terms. Changes in the exchange rate affect the relative prices of goods across countries: Appreciation in the home currency leads to an increase in the relative price of its exports to foreigners and a decrease in the relative price of imports from abroad. A depreciation in the home currency leads to a decrease in the
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This note was uploaded on 03/02/2012 for the course EC 340 taught by Professor Ballie during the Spring '10 term at Michigan State University.

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ch10 (3) - Scenario 1: Indifferent between three markets...

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