If a Pair of Shoes in the United States Costs

question 45

Essay

If a pair of shoes in the United States costs $45, and a pair of the exact same shoes is sold in Mexico for 430 pesos while the exchange rate is E = $0.1100/pesos, what arbitrage opportunities exist (if any)? Ignoring transactions costs, explain how you would take advantage of this.

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Definitions:

Geographic Area

A specific location or region defined by natural or artificial boundaries.

Bid-rigging

A form of fraud in which a commercial contract is promised to one party even though for the sake of appearance several other parties also present a bid.

Collusion

A secret agreement or cooperation between parties for a deceitful or fraudulent purpose, especially to cheat or deceive others.

Restrictive Trade Practice

Business practices that limit competition or control prices, often viewed negatively and regulated by law.