Tom boasts that he is often one of the first buyers of any new technology product.Tom saw a new Apple watch at the Amsterdam airport when he was hurrying to catch a flight back home to New York.Tom saw that the watch sold for 100 Euros.Tom did not have time to buy the watch in Amsterdam.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 watch in New York?

Question

Quizplus · Accepted Answer

According to the law of one price, the price of the same product should be equal in different markets after accounting for the exchange rate. In this case, the watch is sold for 100 Euros in Amsterdam, which is equivalent to $120 (100 x 1.20). Therefore, it should make sense to buy the same watch in New York for $120 (assuming there are no other costs such as taxes or shipping fees). The other options are not correct because they either overestimate or underestimate the price based on the exchange rate.

Tom Boasts That He Is Often One of the First