Not a Zero-Sum Game - Ludwig von Mises Institute

NOT A ZERO-SUM GAME
How Foreign Exchange Rates (Parity) Work
Figure 1 : How different price relationships create profitable opportunities
(i) $300 - {ii) $240
=$60
Figure 1 depicts an entrepreneurial opportunity:
In country A, a person may buy 12 radios at a cost of $240.
(1 2 radios x $20 = $240)
He sells them in country B at Y1,000 each, for a total of Y12,OOO.
(1 2 radios x Y1,000 = Y12,OOO)
With the XI 2,000, he buys 10 TVs in country B.
(Y12,OOO / Y1,200 = 10 TVs)
He sells them in country A for $30 each, for a total of $300.
(10 TVs x $30 = $300)
He makes a profit of $60, minus transaction costs
($300 - $240 = $60)