This morning, the price of a Polar M600 Sports Watch was CAD 399 on Amazon.ca (Canadian website), GBP 220 on Amazon.co.uk (UK website), EUR 249 on Amazon.it (Italian web- site). At the same time, the nominal exchange rates between these currencies were: 0.6 GBP / 1 CAD and 0.67 EUR / 1 CAD.

a. Given the nominal exchange rate between the GBP and the CAD and the price of the Polar M600 Sports Watch in the UK and in Canada, how many ”British” watches can be exchanged for one ”Canadian” watch? How many ”Canadian” watches can be exchanged for one ”British” watch?

b. Given the nominal exchange rates between the GBP and the CAD and the nominal exchange rate between the EUR and the CAD, compute the nominal exchange rate between the GBP and the EUR.

c. Use the nominal exchange rates to compute the price of the ”Canadian” and ”British” Polar M600 Sports Watches in EUR. Compare the price in EUR of the watch in the three countries. In which country is this watch the most expensive?

d. Consider the information for Canada and the UK. Given the price of a Polar M600 Sports Watch in the UK and the nominal exchange rate between the CAD and the GBP what price of the Polar M600 Sports Watch in Canada would make the Purchasing Power Parity (PPP) theory hold?

e. Consider the information for Canada and Italy. Given the price of a Polar M600 Sports Watch in Canada and in Italy, what nominal exchange rate between these two countries would make the PPP theory hold?

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