Shantal saw a Hermes scarf at the Amsterdam airport when she was catching a flight back home to New York. She noticed that the scarf sold for 100 euros. Assume that the euro/dollar exchange rate is €1 = $1.20. According to the law of one price, at what price would it make sense to buy the scarf in New York?

Question

Quizplus · Accepted Answer

According to the law of one price, the price of the scarf in New York should be the same as its price in Amsterdam when converted to dollars. At an exchange rate of €1 = $1.20, the scarf priced at 100 euros would cost 100 * 1.20 = $120.

Shantal Saw a Hermes Scarf at the Amsterdam Airport When