Question

While in a clothing store in London, you find a cashmere sweater that is on sale...

While in a clothing store in London, you find a cashmere sweater that is on sale at 50 percent off with a new price of £250. In the U.S. the same sweater costs $300. The current exchange rate is $1.58/£. Is the sweater a bargain in London? Explain.

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Answer #1

The current exchange rate is $1.58/£. This means for 1 pound we can get $1.58.

Step 1 - Convert $300 into pound equivalent

= 300 / 1.58

= 189.87 pounds or £189.87

Step 2 - Find difference between price in London and U.S

= £250 - £189.87

= £60.13

It can be seen that the price for the sweater (even with 50% off) is higher than its U.S price.

For the same sweater we have to spend £250 in London whereas £189.87 in the U.S. Therefore it is not a baragin in london as it is costly there as compared to U.S.

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