can someone show me step by step how to do 7? The story is told that when the Re

Question

can someone show me step by step how to do 7?

The story is told that when the Republic of Texas was feuding with Mexico, there was a law passed by Texas to the effect that a Mexican silver dollar was worth only 50 cents in Texas; whereupon Mexico passed a law that a Texan silver dollar was worth only 50 cents in Mexico. A citizen of Brownsville, Texas, walked across the bridge over the Rio Grande to Matamoros, Mexico, went into a bar, ordered a 50-cent drink of whisky, paid for it with a Mexican dollar and received a Texan dollar in change. He then walked back to Texas, went into a bar, ordered a drink, paid for it with the Texan dollar, and received a Mexican dollar in change. This pleasant p epeated several times a day went on all winter. At the end of the time the Texan citizen still had his dollar. Obviously the barkeepers suffered no financial losses; and the question is: Who paid for the drinks?

Explanation / Answer

Classic exampe of Financial Arbitrage!! This happens owing to the inconsistent exchange rates offered by the 2 sides namely Texas and Mexico.

To illustrate the concept, consider the citizen having 2 drinks, one each at Mexico and Texas.

Mexico Bar : -1 Texan Dollar (gave to citizen), +1 Mexican Dollar (receives from citizen), -1 Drink

Texas Bar: -1 Mexican Dollar (given), + 1 Texan Dollar (received), - 1 Drink

The exchange rate is 50 cents of Texan Dollar = 50 Cents of Mexican Dollar implying that net financial gain for both bars = +.5 - .5 = 0. But both have LOST 1 DRINK of some value.

Essentially, citizen gains value (free drinks) and the total of it was bourne equally by the bars. For eg, if he had 100 drinks, then both bars lost 50* value/whisky.

Hence, the bars themselves paid for the drinks.

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