You are trying to decide whether to purchase some laptop computers for your business in either Canada or in the United States. Looking at the same machines on the Dell Canada and the Dell US websites, you find out that they sell for US $2000 (US dollars) in the United States and C$3,000 (Canadian dollars) in Canada.
Q1. Where would you purchase the laptop computer if the exchange rate among the Canadian dollar and the U.S. dollar is U.S. $0.80 per Canadian dollar?
Q2. Where would you re-sell it if you wanted to make a gain? (Avoid any taxes, tariffs, transportation costs and the differences in quality).
Q3. Does purchasing power parity hold?
Q4. If many Canadian and American businesses acted similar to you, and if the exchange rate was flexible, what would occur to the value of the exchange rate?
Q5. What would be the latest equilibrium exchange rate which would make purchasing power parity hold for laptops, if the U.S. dollar price and the Canadian dollar price remain constant?