money left over for tapas

As promised, here’s one of the wonderfully wonky “Final Exam” responses from Derek Symer, CAS/MA ’95:

I was not an econ major, but enjoyed puzzling for the past 20 minutes or so over Prof. DuBois Final Exam Question, and in the process learning a little bit about purchasing power parity and arbitrage. My conclusion is that Raffa (why not Roger?) would be better off purchasing his girlfriend’s diamond bracelet in Geneva.

Assuming that the International Herald Tribune exchange rate is close to accurate, then the same bracelet would cost Raffa 106,400 Swiss Francs in Madrid that he paid 100,000 Swiss Francs for in Geneva. Plus he gets to enjoy the pleasure of looking at the nice gift during the flight. And that would leave him with a sweet 2,250 Euros leftover to take her out to for tapas.