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).
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?
(In reply to re(2): W00t
That's making an assumption. If that is true, then the foreign currency they were holding lost that value instantaneously the day the exchange rate changed, NOT as a result of Charlie's transactions.
They break even on Charlie's transactions, which is what the problem is asking.
Posted by John
on 2003-11-07 09:21:59