Question

The exchange rate of U.S. dollars for Canadian dollars is currently $1.00 = C$1.13. The U.S. and Canada allow their currencies to float. Suppose you are an importer-exporter who seeks to profit from buying and selling goods internationally. Also suppose the price of the Audi A8 sedan sells for $62,000 in the United States and C$62,000 in Canada (in Canadian dollars). How much in dollars can you earn per Audi traded?  Provide your answer in U.S. dollars rounded to two decimal places. Use a negative sign "-" for negative values. Do not include any symbols, such as "$," "=," "%," or "," in your answer.

A step by step calculation would be appreciated. If I don't understand, I will ask in the comments before rating.

Answer 1

The current exchange rate is as follows -

$1 = C$1.13

In one US dollar, more than 1 unit of Canadian dollar can be purchased.

So, goods would be cheaper in Canada than US.

It would be profitable to purchase the good in Canada and then sell it is US.

Buying Audi A8 car in Canada.

Cost of Audi A8 car in Canada = C$62,000

Converting the cost of car into US dollar

C$1.13 = $1

C$1 = $[1/1.13]

C$1 = $[1/1.13] × 62,000 = $54,867.26

So, we will need $54,867.26 to buy the Audi A8 in Canada.

Now, this car will be imported in the US where it is sold for $62,000.

Calculate profit -

Profit = Sale price of car - Purchase price of car

Profit = $62,000 - $54,867.26

Profit = $7,132.74

Thus,

$7,132.74 can be earned per Audi A8 traded.