Question 21.A.1: Exchange Rates and the Blue Sweater PROBLEM: While in a clo...

Exchange Rates and the Blue Sweater

PROBLEM: While in a clothing store on Seville Street in London, you find the blue cashmere sweater of your dreams. The sweater is on sale at 50 percent off, priced at £250. “At 50 percent off, the sweater must be a bargain,” you say to yourself. “In the states, a sweater like that costs about $300.” If the current exchange rate is $1.58/£, is the sweater a bargain?
APPROACH: Of course, the relevant question is, 50 percent off of what? The shops on Seville Street in London are very pricey. You will need to use the exchange rate to calculate the price in dollars before comparing the price with that of a comparable sweater in the United States.