Molson’s Beer is produced in Canada and sold in many countries. In the province of Ontario a six-pack of Molson’s beer sold for $8.00 Canadian. Across the border in Buffalo, NY a six-pack of the same beer was for sale for $6.00 US. At the time, the exchange rate was $1.00 US = $1.20 Canadian.
a) How much would it cost in US currency to buy the beer in Ontario?
b) How much would it cost in Canadian currency to buy the beer in Buffalo?
c) Is there an arbitrage opportunity? If yes, explain why arbitrage opportunity exists, and where would you buy and where would you sell?
d) How much profit could you expect on a six-pack?