Alan and Bob each own a bar. Alan's is in very northern New York, and Bob's is just across the border in Canada.

As it turns out, at the beginning of this problem, a Canadian Dollar is worth exactly the same as the U.S. Dollar, and people are quite accustomed to using them interchangeably (including banks).

But, alas, the U.S. Government and the Canadian government get in a spat. So, the U.S. "devalues" the Canadian dollar 10%, so now they will treat it as worth 90 cents (U.S. currency). In retaliation, Canada does the same and "devalues" the U.S. dollar 10%, so they treat it as worth 90 cents (Canadian currency).

Enter Charlie.

Charlie goes to Alan's bar and purchases a 1 dollar drink and pays with a 10 dollar bill (U.S.). He receives, in change, a 10 dollar bill (Canadian). He then walks across the border to Bob's bar and purchases another 1 dollar drink, paying with a 10 dollar bill (Canadian), and he receives, in change, a 10 dollar bill (U.S.).

Charlie proceeds to continue doing this until he finds himself quite intoxicated.

I think it obvious that Charlie is gaining on these transactions. The question is.... WHO (if anyone) is losing out on these transactions?

I don't know, but the northern New York in which I live, five minutes from the Canadian border, charges ($3 CD, $2.50 USD) every time you cross.

In the situation described, I'll assume the border accepts both currencies at par. Even still, Charlie (unless he is a very strong swimmer) is paying a good deal more for the trips over the border than it is worth for the drinks he is recieving.

Even if you neglect border fees, Charlie is performing work in going back and forth. He is obviously traveling on foot (and avoiding bridge fees), due to New York's strictly enforced Zero Tolerance DUI laws (especially so at border crossings because of the difference in the countries' drinking ages), so walking even a few miles from one bar to the other is probably not worth the dollar he is saving in expediting the premature death of a good number of brain cells on his binge.

Posted by DJ on 2003-10-31 12:03:07