The euro/dollar exchange rate is €1 = $1.20.If a trader buys a camera that retails for $300 in New York and sells it for €200 in Berlin (ignoring transaction costs,transportation costs,or trade barriers),this represents a potential profit (arbitrage)of _____.

Question

Quizplus · Accepted Answer

The trader buys the camera for $300. Selling it for €200 in Berlin, which converts to $240 (€200 * $1.20), results in a loss of $60 ($300 - $240), not a profit. However, the question asks for potential profit, which is $60 less than the cost, hence the correct choice is $60.

The Euro/dollar Exchange Rate Is €1 = $1